Ask an Economist (Post #1005 and counting)

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Jericho, your blog post on the gas tax holiday states that Clinton's profit tax on the oil companies would be passed on to the consumer in some part. Krugman says that it would be "in one pocket, out the other" and thus pointless. What's the difference? Or are you just saying that the price will come up anyway after the tax is repealed?

Krugman's saying the same thing I stated. Basically, a tax is a tax,and it doesnt matter who "gets" it. You can charge it to the producer, but they'll pass a % of it onto the consumer. Or you can charge a consumer it, and you get back to the same price under the other scenario.

Either way,its a wash, and a political gimmick

http://www.sjsu.edu/faculty/watkins/taximpact.htm
 
Do you, JH, Whomp, anyone else, know what kind of term structure properties that could be covered by the Black-Derman-Toy model of short rates? Best I can come up with is that it includes mean reversion for the long run rates (even if you're assuming a 50-50 chance of rates going up or down at each period, it's quite unlikely to have a very large or a very low rate).

And my professor mentions "interest rate twists" and the "level effect." Since it'd be a while before I could have that clarified myself, could anyone refresh my memory on those?

Thanks in advance!
 
I have found two very interesting articles . However i have difficulty understanding exactly what they are supposed to be talking .
about.http://macro-man.blogspot.com/2006/11/harry-potter-and-fx-reserve-manager-why.html (2006)

From what i could "understand" the collocial increase in currency reserves of China, India, Russia, and Taiwan has created problems in the market and leads to the Euro/Usdollar changing values at that rate.(i.e Increase of Euro).


And there is a second article named Has Voldemort fallen out of love with the euro? http://macro-man.blogspot.com/2008/05/has-voldemort-fallen-out-of-love-with.html

Thanks in advance.
 
JerichoHill , are you alive ? Anyway what effect do you think peac oil will start to have on the economy at the next four years ? Will things get better or worse ?
 
Do you, JH, Whomp, anyone else, know what kind of term structure properties that could be covered by the Black-Derman-Toy model of short rates? Best I can come up with is that it includes mean reversion for the long run rates (even if you're assuming a 50-50 chance of rates going up or down at each period, it's quite unlikely to have a very large or a very low rate).

And my professor mentions "interest rate twists" and the "level effect." Since it'd be a while before I could have that clarified myself, could anyone refresh my memory on those?

Thanks in advance!

The Toy Model... Yield curve stuff right? Its a base model for other yield curve types, as I recall. And short-term rates should almost always revert to what we expect the long-term to be, over time. (Course the long term rate is changing, so theyre not going to equal)

Level effect, I think, is referring to an change in money supply and its effect on interest rates. Basically more money = less interest = no net change, theoretically.

Financial economics isn't my forte
 
I have found two very interesting articles . However i have difficulty understanding exactly what they are supposed to be talking .
about.http://macro-man.blogspot.com/2006/11/harry-potter-and-fx-reserve-manager-why.html (2006)

From what i could "understand" the collocial increase in currency reserves of China, India, Russia, and Taiwan has created problems in the market and leads to the Euro/Usdollar changing values at that rate.(i.e Increase of Euro).


And there is a second article named Has Voldemort fallen out of love with the euro? http://macro-man.blogspot.com/2008/05/has-voldemort-fallen-out-of-love-with.html

Thanks in advance.

Forward looking investors should have moved off the Euro now, its overpriced I think, as too many investors chased there as the US dollar fell.
 
JerichoHill , are you alive ? Anyway what effect do you think peac oil will start to have on the economy at the next four years ? Will things get better or worse ?

Peak oil? The economic effect of peak oil, if and when it happens, would be to drive prices higher. The price of oil is already high enough (along with other factors) to encourage investment into alternatives. We're already seeing the effects.

I don't think oil will be a concern of the developed world in 2 decades. Something else will be.

We'll continue to feel a pinch in our pockets until we get the costs of the alternatives down and the efficiencies up, and then if its the US that is first to the alternative's mass production, well, we can enjoy another long growth period.
 
Hi.

Are you familiar with the arguments by Ha-Joon Chang that the means by which now rich countries developed is pretty much the exact opposite of the means by which we are recommending and/or forcing other countries to develop?

If you are, what are your thoughts on his arguments?

If you're not, could you spare 70 minutes to watch this and get back to me? :p
 
Aren't you just asking, like, how hypocritical the IMF and the World Bank have been in helping third-world countries?

They like to put on conditionalities that screw over countries. For example, they have to invest in education and build infrastructure, but also lower taxes to promote economic growth and balance the budget.
 
Aren't you just asking, like, how hypocritical the IMF and the World Bank have been in helping third-world countries?

They like to put on conditionalities that screw over countries. For example, they have to invest in education and build infrastructure, but also lower taxes to promote economic growth and balance the budget.

I think the idea is more that we preach free trade, but almost every developed country in the world got that way through the exact opposite of free trade policies.
 
Meh

@@Lightfang
They like to put on conditionalities that screw over countries. For example, they have to invest in education and build infrastructure, but also lower taxes to promote economic growth and balance the budget.
Funny, to me, that sounds like sound policy. I wish we balanced our budget here, and invested more in education. Sigh

The problem with the IMF and World Bank is that theyre ultimately political institutions, and they're largely made up of European thinkers, whose culture is very different from Africa and SE Asia, so they attempt to fit a square peg into a round hole
 
Hi.

Are you familiar with the arguments by Ha-Joon Chang that the means by which now rich countries developed is pretty much the exact opposite of the means by which we are recommending and/or forcing other countries to develop?

If you are, what are your thoughts on his arguments?

If you're not, could you spare 70 minutes to watch this and get back to me? :p

I think people don’t really want to talk about development as the messy, violent, and political process that it has been in the past and paint it as a sort of friendly, non-political process now based on geography, resources, and other material factors. Of course, nobody is saying to go start wars in the name of development, but there’s a big disconnect between what happened before and what people are trying to do now, and for better or for worse, a lot of these critiques are hitting on it.

As a tangent to this topic, you might be interested in an article by James Ferguson called "The Anti-Politics Machine" that attacks the so-called "development" discourse. It looks at a 1975 World Bank report on Lesotho and basically points out how it systematically mischaracterized the country and its history, with skewed or invented data in order to create a conception of "development" that was convenient yet unlikely to help.

The WB report stated that Lesotho was "untouched by modern development" and lacking a modern monetary economy, that it was a sort of egalitarian farming country, that its main problem was soil erosion and that with some projects in agricultural development, it could become a self-sufficient, self-contained economy. In other words, a perfectly non-political, self-contained approach to development. In addition to pointing out how much of the data is apparently fabricated, Ferguson attacks that the report wrongly treats such countries as singular economies that either do or do not have sufficient natural resources without taking into account the history and structural factors in play. For instance, the report completely ignored the fact that Lesotho was fully integrated into the modern capitalist economy and had been for a century, but as a labor reserve for South Africa. It was much easier, however, to simply say that Lesotho's problems were contained within its borders, such as soil erosion and declining agricultural yields (which also seemed to be pushed by the report).

One other report in the late 70s by a different organization argued that because Lesotho workers were earning high wages in the mines, this would lead to “superficial affluence” and a distraction from real development, so the solution was to make Lesotho workers focus on agriculture and farm their way to modernity instead of focusing on improving their labor standards and wages in the mines.

The problem is that there is a clear difference between what "development" means from a institutional perspective, and from a broader academic perspective. Ferguson argues that a lot of these organizations are trying to simply move money and they need to make a case for their existence in terms of these countries' situations. So it is convenient to say that these countries are simply "non-modern" and that they need to be connected to the world economy or that they need agricultural development projects, etc. Thus giving the World Bank a job to do. Talking about exactly why these countries are behind is a much messier operation and makes "development" quite difficult (e.g. talking about Apartheid in 1975?). There are all sorts of political issues of dominance, dependence, resources, etc. above and beyond the non-political objectives of "development" as it is known in the "development" circles, as opposed to an academic portrayal of what "development" really is.
 
I thought the hard part was doing all of those things at the same time. :p

They also advocate devaluing the currency to promote exports, but a tight money policy to avoid rampant inflation...

Hell, I don't really care that much about econ anymore, the Econ SL tests are over. ;)
 
Jericho,

Reaganomics gets a lot of credit, but how much does Carter deserve for putting Volcker in the Fed and cutting inflation? Wasn't Reagan elected in the middle of the recession that was caused by cutting the inflation? What is the general economist's take on the 70s and 80s regarding these guys?
 
I thought the hard part was doing all of those things at the same time. :p

They also advocate devaluing the currency to promote exports, but a tight money policy to avoid rampant inflation...

Hell, I don't really care that much about econ anymore, the Econ SL tests are over. ;)

Well, deflation certainly would be a tight monetary policy...But artficially messing with your currency's value is a bad idea regardless.
 
Jericho,

Reaganomics gets a lot of credit, but how much does Carter deserve for putting Volcker in the Fed and cutting inflation? Wasn't Reagan elected in the middle of the recession that was caused by cutting the inflation? What is the general economist's take on the 70s and 80s regarding these guys?

The standard version would be: Carter got in a bind, and he had no choice but to appoint an inflation hawk like Volcker, even though Carter thought Volcker a bad choice. Volcker then treated the economy like it was a bad hangover and essentially, purged it by regurgitation of interest rates (jacking them up).

Reagan benefited from starting from a low point (always easier to do better from a low point). Then, the combination of lowered taxes and higher spending boosted the economy as its engine began to run. Of course, our growth rate in the future will be lower than it could be because of our mounting debt, but was the present value worth the future value?

Anyways, Volcker's the hero, not Reagan, if we're looking at strictly the economic history aspect.
 
I think the idea is more that we preach free trade, but almost every developed country in the world got that way through the exact opposite of free trade policies.

Hmmm, I don´t think so. Sure in every country´s history you can point to some examples of protectionist policies, but largely the rich countries today have a history of free trade, not complete anarchy - but relatively free trade. Just because pretty much all the developed countries have protected an industry, subsidies another, put up tariffs, quotas and whatnot, doesn´t mean that is the reason they succeeded. They succeeded because they did not go overboard with protectionist policies and relied heavily on free trade, and also because the culture was to respect law and order. A culture with no respect for law and order = violent and poor. A country that bans trade = poorer than their neighbors who practice it.

Anyway, I watched about 20 mins of your guy´s speech, but it gets tiresome to watch this guy struggle through his speech in his 2nd language. If you have a video of a guy on the same theme who speaks English (or Norwegian) fluently, I´d be happy to watch the whole thing.
 
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