Results for “age of em”

17236 found

Here is Greg Mankiw’s very interesting post, but with an open comments section:

I was fascinated a story in today’s Wall Street Journal.  Apparently, Google is sitting on $37 billion in cash, but nonetheless decided to sell $3 billion worth of bonds.  Why?  To take advantage of low interest rates.

It is like reverse maturity transformation.  The banking system borrows short and lends long.  Google is borrowing long and lending short.  (Or maybe I should call it reverse quantitative easing, as Google is also doing exactly the opposite of what the Fed has been doing.)

Does this make sense for Google?  I have no idea, and I am ready to concede that those guys are a lot smarter (and financially successful) than I am.  But there is reason to be skeptical.

The chart above shows the spread between the ten-year Treasury bond and the three-month Treasury bill.  The yield spread is now high by historical standards.  The empirical literature on the expectations theory of the term structure (in which I have sometimes played) suggests that this is a good time to borrow short and lend long–the opposite of what Google is doing.

Maybe this time is different, and past empirical regularities will not hold going forward.  But ponder this question: If you had a friend with a paid-up house, would you suggest that he now take out a long-term mortgage in order to deposit the proceeds in a money-market fund?  If not, does it make sense for Google to be doing much the same thing?

The usual explanation for this kind of apparently strange financial behavior is that shareholders wish to force the managers into accepting the scrutiny of outside capital markets; see Easterbrook 1984.  That seems less plausible in the case of Google, where concentrated delegated monitoring by major shareholders remains strong.  An alternative explanation is that Google has a very high option value for the cash, which more or less implies they see a lot of acquisition and investment opportunities in their not so distant future.  A lot.

I’ve been wondering about a few questions.

Internalizing externalities is a common theme in economics,and it’s also called capturing the value you create.  Don’t economists believe this happens — and happens increasingly — all the time?  Karl Smith writes (and you can find his caveat here):

TFP growth depends on the returns to innovation not being captured by the innovator. Otherwise it becomes a return to the factor of production rather than total factor productivity.

Does TFP tend to fall once it has been high for a while?  Is falling TFP, following a technological breakthrough, a sign of the market’s ability to capture value and internalize externalities?  And is this another reason why we might prefer imperfectly defined intellectual property rights?

The second question concerns the Industrial Revolution.  There is a large cottage industry about the origins of “the rise of the West,” and so on.  I am not disputing the particular causal claims made in this literature.  Still, I wonder what is being explained.  Arguably the potency of the technological platform of “powerful machines plus fossil fuels” was not well understood in advance.  Ex post, that it led to the “rise of the modern world” was somewhat of a technological accident.  In this sense, studies of the origins of the Industrial Revolution, analytically speaking, are explaining “the Industrial Revolution” (to some extent).  But the “sense-reference distinction” matters here.  These studies are not so much explaining “the rise of the modern world,” which is more of a technological accident than we might wish to think.

Third, there remains the issue of unmeasured gains in real wages.  Let’s try a simple thought experiment.  Say I’ve been at George Mason twenty years (much less since 1973) and my real wage had never gone up (not the case).  But my Dean were to say to me: “Tyler, U.S. health care has some new procedures, when you’re 73 you’ll have stents, and now can surf the internet and watch reruns of Battlestar Galactica.  We’ve treated you very well!”  Such a claim would not pass the laugh test and few people would accept it as applied to their own employment relation.  Yet many of those same people make this same argument in the aggregate.  I still think that if measured real wages for a group (or individual) have not gone up very much, over a long period of time, something is wrong.  Wrong with the Dean, wrong with me, whatever, but something is wrong.  Who would have predicted in 1972 that measured male median  wages were going to stagnate and even possibly fall?  You should be shocked by this result and indeed I am.

The piece, by Daniel Klein, et.al., has this abstract:

A sample of 299 U.S. economics professors, presumably random, responded to our survey which asked favorites in the following areas: Economic thinkers (pre-twentieth century, twentieth century now deceased, living age 60 or older, living under age 60), economics journals, and economics blogs. First-place positions as favorite economist in their respective categories are Adam Smith (by far), John Maynard Keynes followed closely by Milton Friedman, Gary Becker, and Paul Krugman. For journals, the leaders are American Economic Review and Journal of Economic Perspectives. For blogs, the leaders are Greg Mankiw followed closely by Marginal Revolution (Tyler Cowen and Alex Tabarrok). The survey also asked party-voting and 17 policy-view questions, and we relate the political variables of respondents to their choice of favorites.

The favorite twentieth century economists are Keynes, Friedman, Samuelson, and Hayek, in that order.  Kenneth Arrow doesn’t do as well as he should, though he comes in second, after Gary Becker, in the category, favorite living economists, sixty years or older.

As for favorite living economists, under age sixty, Paul Krugman wins by a long mile, followed by Greg Mankiw, then Acemoglu, Levitt, and David Card.  I do not deserve my position at #16, but thanks if you voted for me!  Scroll to p.13 for that list.

On p.14 there is a fascinating chart about the political orientations of the voters for various favorite economists.  Krugman for instance is more popular among left-wing economists.

The votes for favorite journal are on p.16, no surprises there.  p.17 has the favorite blogs chart.  Krugman and DeLong are third and fourth, after Mankiw and MR.

It is a fascinating paper which says much about our profession.

That is all from the latest issue of Econ Journal Watch, the link to the whole issue is here.  Here is a good piece about the embarrassment of Richard T. Ely.

Sometimes simple interventions are the best. From research by Glewwe, Park and Zhao.

About 10% of primary school students in developing countries have poor vision, yet in virtually all of these countries very few children wear glasses….This paper presents results from the first year of a randomized trial in Western China that began in the summer of 2004. The trial involves over 19,000 students in 165 schools in two counties of Gansu province. The schools were randomly divided (at the township level) into 103 schools that received eyeglasses (for students in grades 4-6) and 62 schools that served as controls. The results from the first year indicate that, after one year, making eyeglasses available increased average test scores by 0.09 to 0.14 standard deviations (of the distribution of the test scores). For those students who accepted the glasses, average test scores increased by 0.12 to 0.22 standard deviations….

These are rather large effects; similar tests given to children in grades 5 and 6 in Gansu province show that an addition year of schooling leads to an increase of 0.4 to 0.5 standard deviations of the distribution of test scores, which implies that these impacts are equivalent to one fourth to one half of a year of schooling. Thus providing eyeglasses is a relatively low cost and easily implementable intervention that could improve the academic performance of a substantial proportion of primary (and secondary) school students in developing countries.

It’s interesting that many students/parents refused the glasses.

Hat tip to Stephen Dubner who has a good segment on this at Freakonomics Radio.

Demand for Australian commodities is running white-hot. So too are costs in the country’s remote mining towns, to the point where tiny huts or “dongas” can cost as much as a five-star hotel room and backpackers can earn $2,000 a week cleaning them….

“Here the work is very good. You can work 80 hours a week if you want. It’s good money,” said Pic Segolene, a 25-year-old French backpacker who came to Karratha to earn enough cash to fund the rest of her trip around Australia.

Segolene works about 10 hours a day, earning A$25 ($26) an hour to clean houses in this thin slice of suburbia that serves as an Indian Ocean port and a gateway to the endless and bountiful red deserts of Australia’s interior.

Her boyfriend, Eric Gehin, 31, makes A$31 an hour as a gardener.

…Karratha has an official population of 18,000, but up to 10,000 more cram into the town, about 1,300 km (780 miles) from the nearest major city, to work for the mining or gas industries.

Workers often have to stay in primitive accommodation known as “dongas,” pre-fabricated huts smaller than a shipping container, each with an overworked air conditioner to keep out desert temperatures that can soar to 40 degrees Celsius.

A “donga” can cost up to A$250 a night, about the same price as a room in a five-star hotel in Sydney, overlooking that city’s famous harbour, or in downtown Tokyo or London.

The full story is here.   There are jobs in North Dakota as well, which is reporting labor shortages.

It is from the not yet but soon to be famous Alp Simsek, at Harvard, and smart people tell me it is important and already influential.  I will read the paper soon, here is the abstract:

While the traditional view of …financial innovation emphasizes the risk sharing role of new fi…nancial assets, belief disagreements about these assets naturally lead to speculation, which represents a powerful economic force in the opposite direction. This paper investigates the effect of fi…nancial innovation on risks in an economy when both the risk sharing and the speculation forces are present. I consider this question in a standard CARA-Normal framework. Financial assets provide hedging services but they are also subject to speculation because traders do not necessarily agree about their payoffs. I de…fine the average variance of traders’ net worths as a measure of …financial stability for this economy, and I decompose it into two components: the uninsurable variance, de…fined as the average variance that would obtain if there were no belief disagreements, and the speculative variance, de…fined as the residual variance that results from speculative trades based on belief disagreements. Financial innovation always decreases the uninsurable variance because new assets increase the possibilities for risk sharing. My main result shows that …financial innovation also always increases the speculative variance. This is true even if traders completely agree about the payoffs of new assets. The intuition behind this result is the hedge-more/bet-more effect: Traders use new assets to hedge their bets on existing assets, which in turn enables them to place larger bets and take on greater risks. This effect suggests that …financial innovation is more likely to be destabilizing in more complete …financial markets and when it concerns derivative assets.

In a dynamic setting, …financial innovation always reduces the average variance in the long run because traders learn from past asset payoffs. A question emerges as to how new assets should be introduced to minimize their short run impact on the speculative variance. I show that staggering (or delaying) the introduction of new assets is not effective because it reduces traders’ learning simultaneously with their speculation. A viable alternative is to set temporary position limits (or taxes) on new assets.

If there was a “Fantasy Economics League,” I would go long on this guy.  For the pointer I thank Tristan.