Monetary Base versus Money Supply

Craig Depken, a great guy and former colleague when I was in Arlington, TX, is worried. I was too the first time I saw the chart he posted:

Then, I did some legwork and hopefully we can keep CADII from fleeing to Canada. The monetary base is heavily biased towards bank reserves, and if banks just are not lending, then this would be expected. Try the actual money supply on for size:

Or, try looking at non-borrowed reserves, and you might see why Bernanke went ooooohhh [expletive] around late 2008 (not the big spike into the negative):

We haven't learned a damn thing!

AAAAAAAAAAAAAAARGHHHH!

Making more Ethanol from Less Corn

Another example of technological innovation around the margins (and the institutions that support it) working to keep us from falling into the Malthusian trap. I'm not a big ethanol fan, but things that can be done to make waste byproducts more useful (e.g. the building of the first cellulose ethanol plant) to help in the short run, might just help us get closer to a long-run solution with wind, solar, geothermal, etc.

Market Imperfections & Policy Specificity

Two things I'll never understand about the debate over the current intervention package. One, why are conservatives parroting for nothing more than blanket tax cuts? Two, why are liberals doing little more than ranting about income distribution?

Financial markets are rife with potential market imperfections: asymmetric information, moral hazard, etc. When the whole crisis was getting revved up, I never understood why there wasn't more effort, not to bail out folks who were now sinking, but to secure traditionally-available lines of credit for individuals and businesses who have always been able to get loans. We did amazingly little to target the core problem then, and we're paying for it now.

So now the problem has spread. People are losing their jobs because of the same problem, and it seems to me, the most direct way to deal with that particular problem is to take this opportunity to increase investment in certain types of "public goods" - infrastructure, etc. - that will at least be there for us when we come out of this mess. It doesn't seem like 1-2 percent in business tax cuts are going to keep the private sector in business when they can't secure the tens of thousands, hundreds of thousands, or millions of dollars in short term credit they're used to taking out for day-to-day operations (the timeline for revenue streams seldom match one-to-one with costs).

It's called policy specificity. Credit markets don't work right? Direct policy towards those (not just bailing out the firms that broke those markets either). High unemployment? Direct policy towards that, and don't just give a payout to firms who may or may not need it and may or may not use it to expand production and employment.

Two Stupid Letters

There's this one by a liberal interest group, and this one by a conservative one.

Neither one really does much to add to a constructive debate over the appropriate role for government, because one is just blindly endorsing a (bad) political solution, and one is using a non-sequitor to argue against it.

I did not endorse either one.

Freakout-onomics

I've said several times that as far as "downturns" or "recessions" go, this one actually isn't as bad as it's made out to be so far. It may well get much MUCH worse, but so far it has been relatively mild in terms of changes in actual output and employment and that this particular financial crisis is not all that different or unique in comparison to past episodes in the postwar era, but don't take my word for it: Take theirs, or theirs (cross-posted via Economix). Basic idea: Times are indeed tough, but we've been through worse, and made it out. Hang in there as best you can, folks.

Small Transaction Costs and the Marginal Utility of Cafeteria Food

Trays are making college students fat. University cafeterias (all you can eat) waste about 30% less food when trays are eliminated, which essentially requires students to go through the line getting ONE plate and ONE drink instead of loading up. I like the comments on this one, especially Michael:

As someone who goes to a college that just eliminated trays, it really
isn’t a win-win situation. It might make people eat less food and waste
less, but it substantially increases the hassle when you have to carry
a plate or two plus a drink and silverware. All that isn’t easy to
carry without a tray.

Yeah, that's basically the point, Michael. That relatively small hassle, or cost, is what we call a transaction cost, and its keeping you from eating enough for a small African village for lunch.

Class Size, Practice, and Learning

Universities are starting to work harder to supply a better product to the market. Instead of cramming butts into several-hundred-seat lectures, MIT and others are reducing class sizes to try to improve their product. But the move is not just for class size: the size reduction is geared towards getting students to have a more hands-on experience - to learn by doing and create a peer-collaborative learning environment.

I certainly can't say that I'm not guilty of falling into a lecture trap of the old school, but we need to think innovatively to capture students with different strengths and learning styles, and do a better job of creating a open line of communication between students and instructors as well as among the students so that they can unlock the material for themselves.

Lessons in Opportunity Cost: Immigration

This is an important lesson in opportunity cost, focusing on the allocation of resources to immigration enforcement. As we expend more budgeted resources towards deportation, and quota enforcement, the more difficult it becomes to control the smuggling of drugs, weapons, and criminal activities across the border. Maybe a more sensible policy on quotas and their enforcement will come, say, in the next decade or so.

This is Interesting

I ran into this via the Green, Inc. blog. Basic idea: which states offer tax breaks for housholds that get renewable energy fixtures for their own use? Find your state and see what's out there.

Economic Humor

At some point it had to be done at the AEA meetings. Maybe better to save economic humor for the recovery, though?

International Education

I didn't actually know that the proportion of international students at US universities were fewer in proportion to the total enrollment than it is in other developed countries. But why should universities pay intermediaries to recruit more students, as the article suggests? It seems like many students are being turned away from the best schools, and the students already in the schools (especially foreign-born students) are reasonably well-qualified. It seems that if there is a greater number of applications from qualified students the thing to do would be to price things better, especially for out-of-state and international students, with generous subsidies for highly-qualified in-state students who do not benefit from a mountain of trust-fund wealth. Let the international students come, but also let them pay full price for the high level of enrollment demand.

Taxes and Spending

Note to Hardball: In this segment your Republican and Democratic guests are arguing over an economic point that is theoretically moot. Maybe that's the beauty of it. In terms of economic impact of a tax cut (in both the "liberal" Keynesian and "conservative" neoclassical schools of thought) is the same as an increase in transfer payments (consumption subsidies). Similarly, an increase in transfer payments is the same as a tax cut. Spending is only "spending" (in terms of having different multiplier effects) if it involves a direct government purchase of goods and services, which transfers/tax cuts/negative taxes do not. Even better if those goods and services have some theoretical possibility of being "public goods" or generating "externalities" or "network effects" as investments in education, infrastructure, or even the military and health care, might.

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Today's Reason the Fence won't work.

If Japan's restrictions on immigration are leading to rising illegal entries, what makes Lou think his border fence will work (hint: Japan is an island nation for the geography-impaired)?

Economists in the Economist

Summary of the Economists list of rising stars in the field (sorry, my name won't be found):

Jesse Shapiro: Some information is bad.
Roland Fryer: Cultural roots of black underachievment.
Esther Duflo: Test projects (with treatments and controls) for empirical studies of development.
Amy Finkelstein: Annuities and private information of life expectancy.
Raj Chetty: Longer unemployment benefits are optimal because people find better job matches.
Ivan Werning: Progressive subsidies for inheritances ("death subsidy," higher for small bequests).
Xavier Gabaix: Explaining "Rank-Size" and "Power Rules."
Marc Melitz: New-new trade theory on international business networks.

Name these Protectionists

Inferior Good?

Are New England Ski Resorts "inferior goods?"

Madoff

Here's Madoff's indictment: 

http://clusterstock.alleyinsider.com/2008/12/bernie-madoff-the-indictment

Governor Bag-o-Tricks

The downstate Illinois nickname for Blago. Thought I'd post a link to the text of the complaint. Most of what they actually might get him for isn't even the alleged "Senate for Sale " scheme. Those of us from Illinois know he was dirty shortly after he took office. Trouble is, when he was elected, then-governor George Ryan (a Republican) was also on trial for corruption. His deeds lead to the illegal licensing of criminals for commercial truck licenses, which ultimately (allegedly) lead to fatal accidents involving those criminals who proved to be inept and irresponsible about their driving.

Here's G-Rod's Complaint and affidavit:

http://www.scribd.com/doc/8759869/Blagojevich-Complaint

Cyclical Migration

More good news for Lou Dobbs. Not only are fewer illegals coming, more are returning. Hooray for a bad economy?