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August 10, 2012

Latest Posts from Economist's View

Latest Posts from Economist's View

Posted: 10 Aug 2012 12:24 AM PDT
North American freshwater fish diversity is in decline:
North American freshwater fishes race to extinction, EurekAlert: North American freshwater fishes are going extinct at an alarming rate compared with other species, according to an article in the September issue of BioScience. The rate of extinctions increased noticeably after 1950, although it has leveled off in the past decade. The number of extinct species has grown by 25 percent since 1989.
The article, by Noel M. Burkhead of the US Geological Survey, examines North American freshwater fish extinctions from the end of the 19th Century to 2010, when there were 1213 species in the continent, or about 9 percent of the Earth's freshwater fish diversity. At least 57 North American species and subspecies, and 3 unique populations, have gone extinct since 1898, about 3.2 percent of the total. Freshwater species generally are known to suffer higher rates of extinction than terrestrial vertebrates. ...  Burkhead concludes that between 53 and 86 species of North American freshwater fishes are likely to have gone extinct by 2050, and that the rate of extinction is now at least 877 times the background extinction rate over geological time.
Posted: 10 Aug 2012 12:06 AM PDT
Posted: 09 Aug 2012 06:21 PM PDT
Joshua Gans:
... A few years back I contacted Yahoo and Google with an idea to counter spammers. What if for each spam email that they picked up, they responded — perhaps entering details into phishing forms? This would overwhelm spammers and they would not be able to find 'legitimate' responses from the gullible few. That would really alter their returns. Unfortunately, it was explained to me that such a measure would constitute an attack by a US corporation and, apparently, that is against US law. ...
Posted: 09 Aug 2012 10:40 AM PDT
I need to read this paper:
Innocent Bystanders? Monetary Policy and Inequality in the U.S., by Olivier Coibion, Yuriy Gorodnichenko, Lorenz Kueng, and John Silvia, NBER Working Paper No. 18170, Issued in June 2012 [open link]: Abstrct We study the effects and historical contribution of monetary policy shocks to consumption and income inequality in the United States since 1980. Contractionary monetary policy actions systematically increase inequality in labor earnings, total income, consumption and total expenditures. Furthermore, monetary shocks can account for a significant component of the historical cyclical variation in income and consumption inequality. Using detailed micro-level data on income and consumption, we document the different channels via which monetary policy shocks affect inequality, as well as how these channels depend on the nature of the change in monetary policy.
And, part of the conclusion:
VI Conclusion Recent events have brought both monetary policy and economic inequality to the forefront of policy issues. At odds with the common wisdom of mainstream macroeconomists, a tight link between the two has been suggested by a number of people, ranging widely across the political spectrum from Ron Paul and Austrian economists to Post-Keynesians such as James Galbraith. But while they agree on a causal link running from monetary policy actions to rising inequality in the U.S., the suggested mechanisms vary. Ron Paul and the Austrians emphasize inflationary surprises lowering real wages in the presence of sticky prices and thereby raising profits, leading to a reallocation of income from workers to capitalists. In contrast, post-Keynesians emphasize the disinflationary policies of the Federal Reserve and their disproportionate effects on employment and wages of those at the bottom end of the income distribution.
We shed new light on this question by assessing the effects of monetary policy shocks on consumption and income inequality in the U.S. Contractionary monetary policy shocks appear to have significant long-run effects on inequality, leading to higher levels of income, labor earnings, consumption and total expenditures inequality across households, in direct contrast to the directionality advocated by Ron Paul and Austrian economists. Furthermore, while monetary policy shocks cannot account for the trend increase in income inequality since the early 1980s, they appear to have nonetheless played a significant role in cyclical fluctuations in inequality and some of the longer-run movements around the trends. This is particularly true for consumption inequality, which is likely the most relevant metric from a policy point of view, and expenditure inequality after changes in the target inflation rate. To the extent that distributional considerations may have first-order welfare effects, our results point to a need for models with heterogeneity across households which are suitable for monetary policy analysis. While heterogeneous agent models with incomplete insurance markets have become increasingly common in the macroeconomics literature, little effort has, to the best of our knowledge, yet been devoted to considering their implications for monetary policy. In light of the empirical evidence pointing to non-trivial effects of monetary policy on economic inequality, this seems like an avenue worth developing further in future research. ...
Finally, the sensitivity of inequality measures to monetary policy actions points to even larger costs of the zero-bound on interest rates than is commonly identified in representative agent models. Nominal interest rates hitting the zero-bound in times when the central bank's systematic response to economic conditions calls for negative rates is conceptually similar to the economy being subject to a prolonged period of contractionary monetary policy shocks. Given that such shocks appear to increase income and consumption inequality, our results suggest that standard representative agent models may significantly understate the welfare costs of zero-bound episodes.
Posted: 09 Aug 2012 09:03 AM PDT
The other day, I asked "Why would someone undermine their professional reputation defending Romney's indefensible economic policies?" Simon Wren-Lewis is less worried about their individual reputations than the reputation of the profession as a whole:
Giving Economics a Bad Name, by Simon Wren-Lewis: Greg Mankiw is known to every economist and economics student, if only because of his best selling textbook. John Taylor is known to every macroeconomist, if only because of the large number of bits of macro with his name on it (Taylor rule, Taylor contracts etc). Both are respected by other academics because of the quality and influence of their academic work.
With two others, they recently wrote this about the Obama administration's attempts to stimulate the economy through fiscal policy after the recession: "The negative effect of the administration's 'stimulus' policies has been documented in a number of empirical studies." They then quote from two studies. ... No other studies are directly referred to. That might just be because the overwhelming majority suggest that the stimulus package worked. ... Which is not too surprising, as it is what Mankiw's textbook suggests, and it is what the New Keynesian theory both authors have contributed to suggests.
Now the quote comes from a paper prepared for the Romney presidential campaign. It is clearly political in tone and intent. As both academics are Republican supporters, it may therefore seem par for the course. But it should not be. The Romney campaign publicised this paper because it was written by academics – experts in their field. It allows those who oppose fiscal stimulus to continue to claim that the evidence is on their side – look, these distinguished academics say so.
It is one thing for economists to disagree about policy. It would also be fine to say I know the evidence is mixed, but I think some evidence is more reliable. It is not fine to imply that the evidence points in one direction when it points in the other ... 
This is sad, because it tells us as much about economics as an academic discipline as it does about the individuals concerned. In the past I have imagined something similar happening in physics..., if it did, the academics concerned would immediately lose their academic reputation. ... Responding to evidence rather than ignoring it is what distinguishes real science from pseudo science, and doctors from snake oil salesmen.
What can economics as a discipline do about this sad state of affairs? The answer is pretty obvious, to economists in particular, and that is changing the incentives where we can. However we cannot do much about the incentives provided by politics and the media. I have been pretty pessimistic about this in the past, but in a future post I will try and be more positive and talk about one possible way forward. 

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