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July 26, 2015

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Posted: 26 Jul 2015 12:06 AM PDT

'The Rise in Obesity'

Posted: 25 Jul 2015 10:59 AM PDT

From Vox EU (and in today's links), can economic factors explain the rise in obesity?:

Changing economic factors and the rise in obesity: The dramatic increase in obesity has raised the question of whether economic incentives can explain this trend. ...
Of the 27 economic factors, two stand out as having the largest effects. First is the increase in restaurants per capita, which explains 12%, 14%, and 23% of the increases in BMI, obesity, and severe obesity, respectively. Increased availability of restaurant food would likely encourage substitution away from home-cooked meals to relatively unhealthy restaurant meals. Furthermore, fast food is not the lone culprit. When we split the restaurant variable into fast-food and full-service restaurants, we find similar effects for each type.
The second major contributor is the increase in superstores and warehouse clubs per capita, which accounts for 17%, 16%, and 24% of the growth in body mass index, obesity, and severe obesity. The superstore variable combines Walmart Supercenters with the warehouse club chains Costco, Sam's Club, and BJ's Wholesale Club. A possible explanation for the impact of these stores on obesity is that they sell food at discounts of around 20% relative to traditional grocers. Alternatively, buying food in bulk at warehouse clubs could contribute to overeating. However, when decomposing the superstore variable, Walmart Supercenters are found to have roughly the same effect as warehouse clubs. Since Walmart Supercenters sell food in traditional package sizes, this reduces the likelihood that bulk buying is a primary explanation.
This analysis suggests that variables related to the costs of eating – particularly Supercenter/warehouse club expansion and increasing numbers of restaurants – are leading drivers of the rise in obesity occurring since the early 1980s. However, the source of these effects remains somewhat uncertain. One possibility, previously discussed, is that they lower food prices, particularly for energy-dense food products and restaurant meals, so that the utility-maximising level of weight has increased. An alternative is that the expansion of Supercenters/warehouse clubs and restaurants has reduced time costs because of the greater availability of such foods. When combined with time-inconsistent preferences (i.e. the inability to follow through on previously made plans) this could lead to weight gains beyond utility-maximising levels. Consistent with this, we find that Supercenter/warehouse club densities are correlated with increases in weight loss attempts, which may reflect eating mistakes.
While restaurants, Supercenters, and warehouse clubs appear to have contributed substantially to the rise in obesity, this does not necessarily mean that they are bad for society. The increased availability and affordability of food brought about by these businesses undoubtedly have substantial benefits for consumers. However, such progress comes at a cost. Future research should investigate the reasons why restaurants and superstores contribute to obesity with the aim of helping policymakers develop appropriately targeted solutions.

'The Old Man and the CPI'

Posted: 25 Jul 2015 10:58 AM PDT

Paul Krugman:

The Old Man and the CPI: I don't watch financial news, but CNBC was on in the gym, so I was treated to a long ad from Ron Paul, who wants you to buy his video explaining the coming crisis brought on by loose money. And I found myself thinking about the remarkable fact that there really are people who will buy that video.
After all, Ron Paul has been making the same prediction year after year — in fact, he's been making this prediction at least since 1981! — and has been wrong year after year. It's hard to think of a doctrine that has been as thoroughly refuted by events as goldbug economics. ...
The basic mindset of the kind of people who pay Ron Paul for his economic advice is pretty clear: they've made some money over the course of their lives, they believe that all of it reflects their own virtue, and they think they know from that experience what it takes to create wealth. They hear that the Fed is printing money, and it sounds to them like a violation of both the laws of economics and morality — and they surely think of it as a plot to take away their completely earned gains and give them to Those People (hence the whiteness issue).
You can try as hard as you like to tell such people that monetary policy is mainly a technical problem, that the Fed isn't giving money away, and that predictions of runaway inflation have been utterly wrong; it will make no difference. You can point out that they would have done a much better job of investing if they had listened to the MIT gang; sorry, we're just not their kind of people.
I'd say it's sad, but I find it hard to feel much sympathy for the marks of this particular scam. Then again, that's probably why they will never, ever listen to what I have to say.

There are also silverbugs:

LBJ signed the 1965 act,... the president noted, "our coinage of dimes, and quarters, and half dollars, and dollars have contained 90% silver." Not any more: The new dimes and quarters would "contain no silver." Instead they would be "composites, with faces of the same alloy used in our 5-cent piece that is bonded to a core of pure copper." The new half dollar would have 80% silver on the outside and 19% silver inside.

... The value of the dollar started sinking after the 1965 coinage act, and by 1980 the dollar—so long valued at 0.77 ounces of silver—plunged to 0.02 ounces of silver. Today it is valued at 0.06 ounces of silver.
The pre-1965 silver coins have mostly disappeared from circulation. Misers who try to spend silver or gold coins they have hoarded are subject to a capital-gains tax. Monetary purists, incidentally, prefer to speak of "spending" gold and silver, rather than "selling" it, because gold and silver are the true constitutional money.
The U.S. Constitution prohibits states from coining money themselves or making anything but gold or silver coins legal tender. ...
A ... radical approach would be the Free Competition in Currency Act, originally the brainchild of Ron Paul, the former Texas congressman, and offered again in the last Congress by Rep. Paul Broun (R., Ga.). It adopts the idea of the late Nobel laureate Friedrich Hayek. This measure would end the legal tender laws, halt capital-gains taxation on gold and silver, and permit private coinage.

One important characteristic of a medium of exchange is that its supply can be controlled in way that allows shocks to the supply and demand for the medium of exchange to be offset. Otherwise, the value will potentially vary quite a bit over time. (E.g. the price of silver went from around $10 near the end of 1972 to over $100 at the beginning of 1980, followed by a large fall back to around $10 at the beginning of 1990. In 2001 it fell to around $6, then spiked to around $50 by 2011, then fell again to around $15 today, and all indications are that it will fall further.) Such large variations in purchasing power of the medium of exchange are highly undesirable -- this is what the gold and silver bugs object to, periods of rapid inflation and deflation (in addition to the variation in purchasing power, it creates considerably uncertainty about the future -- what will be the value of the medium of exchange when loans are repaid? -- and harms future investment).

One way to control the supply is to have it be essentially fixed, as with bitcoin, but that is not sufficient. As we've seen with bitcoin, variations in demand can have a huge impact on value. Similarly for precious metals. Supply can change with mining, etc., but it changes slowly, and variations in demand can lead to wildly fluctuating values. The solution is to have some central authority -- let's call if "the Fed" -- with the ability to alter the supply of the commodity quickly so as to keep the price stable.

So the choice is to have a medium of exchange whose value can vary significantly, suddenly and unexpectedly, or have a central authority intervene to stabilize the price (by stockpiling or selling the medium of exchange to offset shocks to the supply and demand for the commodity). The point is that if changes in the value of a medium of exchange is the concern, as it appears to be, then switching to a commodity money does not solve the problem of needing a central authority to keep the value stable.

Survey of Long-Term Interest Rates

Posted: 25 Jul 2015 10:58 AM PDT

The conclusion of a long White House report on long-term interest rates:

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V. Conclusion Many factors play roles in the determination of long - term interest rates, including the rate of productivity growth, beliefs about future risks, consumer preferences , demographic shifts , and the stance s of monetary and fiscal policy. As markets have become globally integrated, conditions in foreign markets are increasingly important for U . S . long - term interest rates. Over the past two decades, long - term interest rates have been falling worldwide. An explanation for why they are so low — and whether those low levels will persist — i s one of the most difficult questions facing macroeconomists today.
 Interest rates are jointly determined by the supply of saving and the demand for investment. While it is difficult to make strong predictions, this report argues that there are a number of reasons to think that the global saving supply curve has shifted outward , a development that would help to keep equilibrium interest rates low . As with any price in the economy, a low price is beneficial to some and has negative ramifications for others. Low long - term interest rates make it cheaper for governments to finance their debt burdens. By reducing the cost of borrowing, lower long - term interest rates create more fiscal sp ace for government programs, including infrastructure investment, reducing the cost of expansionary fiscal policy. Lower long - term interest rates should also reduce the cost of borrowing by the private sector, encouraging investments that can enhance growth in the future. However, if rates are low because of subdued expectations about future growth, investment is unlikely to be robust .
For savers, lower equilibrium long - term interest rates would affect the return to savings, the cost of borrowing for homeownership, and lifecycle decisions about when to retire and the time pattern of consumption.
Finally, lower long - term interest rates could have important implications for monetary policy, particularly regarding the zero lower bound for short - term interest rates and specific policy tools. Market participants , in turn, may take these factors into effect when making economic forecasts or planning consumption and investment.
Ultimately, interest rates reflect fundamental macroeconomic conditions and there is no "optimal" rate of interest. The goal of policy should not be to target a particular rate, but to support long - run growth, maintain price stability, and strengthen the resilience of financial markets .

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