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September 26, 2015

Latest Posts from Economist's View

Posted: 21 Sep 2015 01:08 AM PDT
Why are bankers so angry about the Fed's decision not to raise interest rates?:
The Rage of the Bankers, by Paul Krugman, Commentary, NY Times: Last week the Federal Reserve chose not to raise interest rates. It was the right decision. In fact, I'm among the economists wondering why we're even thinking about raising rates right now. ... Yet the Fed has faced constant criticism for its low-rate policy. Why?
The ... story keeps changing. In 2010-2011 the Fed's critics issued dire warnings about looming inflation. You might have expected some change in tune when inflation failed to materialize. Instead, however, those who used to demand higher rates to head off inflation are still demanding higher rates, but for different reasons. The justification du jour is "financial stability," the claim that low interest rates breed bubbles and crashes. ... Why does anyone take this stuff seriously?
Well, when you see ever-changing rationales for never-changing policy demands, it's a good bet that there's an ulterior motive. And the rate rage of the bankers — combined with the plunge in bank stocks that followed the Fed's decision not to hike — offers a powerful clue... It's the bank profits, stupid. ...
For banks make their profits by taking in deposits and lending the funds out at a higher rate of interest. And this business gets squeezed in a low-interest environment... The ... difference between the interest rate banks receive on loans and the rate they pay on deposits ... has fallen sharply over the past five years.
The appropriate response of policy makers ... should be, "So?" There's no reason to believe that what's good for bankers is good for America. But bankers are different from you and me: they have a lot more influence. Monetary officials meet with them all the time, and in many cases expect to join their ranks when they come out on the other side of the revolving door. ...
So we shouldn't be surprised to see institutions that cater to bankers, not to mention much of the financial press, spinning elaborate justifications for a rate hike that makes no sense in terms of basic economics. And the debate of the past few months, in which the Fed has seemed weirdly eager to raise rates..., suggests that even U.S. monetary officials aren't immune.
But the Fed did the right thing last week: nothing. And the howling of the bankers should be taken not as a reason to reconsider, but as a demonstration that the clamor for higher rates has nothing to do with the public interest.
Posted: 21 Sep 2015 12:51 AM PDT
This might interest some of you:
The lifecycle of scholarly articles across fields of economic research, by Sebastian Galiani, Ramiro Gálvez, Maria Victoria Anauati, Vox EU: Citation counts stand as the de facto methodology for measuring the influence of scholarly articles in today's economics profession. Nevertheless, a great deal of criticism has been made of the practice of naively using citation analysis to compare the impact of scholarly articles without taking into account other factors which may affect citation patterns (see Bornmann and Daniel 2008).
One recurrent criticism focuses on 'field-dependent factors'... In a recent paper (Anauati et al. 2015), we analyze if the 'field-dependent factors' critique is also valid for fields of research inside economics. Our approach began by assigning into one of four fields of economic research (applied, applied theory, econometric methods and theory) every paper published in the top five economics journals –  The American Economic Review, Econometrica, the Journal of Political Economy, The Quarterly Journal of Economics, and The Review of Economic Studies.
The sample consisted of 9,672 articles published in the top five journals between 1970 and 2000. It did not include notes, comments, announcements or American Economic Review Papers and Proceedings issues. ...
What did they find?:
Conclusions Even though citation counts are an extremely valuable tool for measuring the importance of academic articles, the patterns observed for the lifecycles of papers across fields of economic research support the 'field-dependent factors' inside this discipline. Evidence seems to provide a basis for a caveat regarding the use of citation counts as a 'one-size-fits-all' yardstick to measure research outcomes in economics across fields of research, as the incentives generated by their use can be detrimental for fields of research which effectively generate valuable (but perhaps more specialized) knowledge, not only in economics but in other disciplines as well.
According to our findings, pure theoretical economic research is the clear loser in terms of citation counts. Therefore, if specialized journals' impact factors are calculated solely on the basis of citations during the first years after an article's publication, then theoretical research will clearly not be attractive to departments, universities or journals that are trying to improve their rankings or to researchers who use their citation records when applying for better university positions or for grants. The opposite is true for applied papers and applied theory papers – these fields of research are the outright winners when citation counts are used as a measurement of articles' importance, and their citation patterns over time are highly attractive for all concerned. Econometric method papers are a special case; their citation patterns vary a great deal across different levels of success.
Posted: 21 Sep 2015 12:06 AM PDT
Posted: 20 Sep 2015 09:18 AM PDT
William D. Nordhaus reviews Pope Francis's encyclical on the environment and capitalism (Laudato Si': On Care for Our Common Home, an encyclical letter by Pope Francis, Vatican Press, 184 pp., available at w2.vatican.va):
The Pope & the Market, NYRB: Pope Francis's encyclical on the environment and capitalism, Laudato Si', is an eloquent description of the natural world and its relationship to human societies.1 ... Most commentaries have focused on the pope's endorsement of climate science, but my focus here is primarily on the social sciences, particularly economics.
My major point is that the encyclical overlooks the central part that markets, particularly market-based environmental policies such as carbon pricing, must play if countries are to make substantial progress in slowing global warming. ...
Unfortunately, Laudato Si' does not recognize the fact that environmental problems are caused by market distortions rather than by markets per se. This is seen in the condemnation of "carbon credits"... Many commentators have interpreted this passage as a condemnation of cap-and-trade... Whatever the specific target, this part of the encyclical is clearly a critique of market-based environmental approaches. ...
Cap-and-trade has in fact been successfully used, for example to phase out lead from gasoline, to limit sulfur dioxide emissions in the United States by more than half, and to limit carbon dioxide emissions both in the European Union and more recently in major Chinese municipalities. The alternative to cap-and-trade is carbon taxation, which raises carbon prices by taxing carbon emissions. Such a tax is simpler and avoids any of the potential corruption, market volatility, and distributional issues that might arise with cap-and-trade systems.
Given the successes of cap-and-trade and other market mechanisms to improve the environment, it is unfortunate that they are the target of Pope Francis's criticism. ... He does indeed acknowledge the soundness of the science and the reality of global warming. It is unfortunate that he does not endorse a market-based solution, particularly carbon pricing, as the only practical policy tool we have to bend down the dangerous curves of climate change and the damages they cause.
[I left out quite a bit. All of his points, and much more, are fully explained in the review.]

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