Showing posts from December, 2009

A year of blog-lighting

It's the New Year and baby GG&G is one year old! It began on something of a lark, during last year's holiday break.  Mainly I wanted to show my mother how easy it was.  My mother is an expert in early child development and eduction and has tremendous knowledge and enthusiasm about her subject.  She's also a great story teller.  And she's always claimed she wanted to write one day, so I suggested blogging would be a great way for her to get started. So far my attempt at leading my mother by example hasn't worked, but I haven't given up. Visits and page views here at GG&G are gradually increasing and typically range from 50-100 unique visits and 75-150 page views a day.  Sometimes, when Mark Thoma (who's probably responsible for 1/3-1/2 my visits) or some other higher-profile blogger links to GG&G, I can get 400 or more visits and over 600 page views.  (Thanks Mark!)  Besides Mark, I've been linked to by Grist, the Faceless Bureaucrat, Cl

On price-to-earnings and price-to-rent ratios

Standard metrics for assessing values of stocks and homes are the price-to-earnings ratio and price-to-rent ratio.  For stocks, sometimes a price-to-dividend ratio is used.  Also for stocks, since earnings and dividends can be highly volatile in the short-run, a longer-run average is used rather than current earnings or dividends. Here's a recent chart from Calculated Risk showing the price-to-rent ratio for houses. And here's a recent chart from Econbrowser showing the price-to-earnings ratio for stocks. (Note that the first plot shows the index rescaled so that 1980 [1987] = 1.  If it were not rescaled this way, the units on the vertical axis would look pretty similar to those for stocks.) These are nice metrics both conceptually and empirically. Conceptually, they say something about the rate of investment return.  If the stock were infinitely lived and paid same earnings, then the net present value of the flow of earnings equals the price if future earnings ar

Might Krugman's polemic prediction about Enron vs. 9-11 ever come true?

I look at our financial and economic system in dumbfounded awe as to how it all works.  We shovel trillions of dollars into banks, stocks and mutual funds, rarely knowing the first thing about how well the underlying companies are managed or how profitable they are or what they are truly doing with our money.  While I think I'm more informed than the average investor, I couldn't tell you which 10 CEOs are most responsible for my investments.  I couldn't even tell you the top 10 companies! I think most investors are like me.  So this begs the obvious question: what keeps those CEOs from running off with all our money?! The fact that I do invest shows I have remarkable confidence in our financial system.  That confidence is based on history, the fact that firms and CEOs have been honest and transparent enough in their accounting and that, over the long run, the stock market has performed extremely well.  The long sweep of history says I'm crazy not to invest. But th

Obama isn't elusive

I'm disinclined to blog much about politics.  But this column by the former blogger turned conservative NY Times columnist Ross Douthat kind of struck a chord in me. Every presidency is the subject of competing caricatures. But almost a year into his first term, there’s something particularly elusive about Barack Obama’s political identity. He’s a bipartisan bridge-builder — unless he’s a polarizing ideologue. He’s a crypto-Marxist radical — except when he’s a pawn of corporate interests. He’s a post-American utopian — or else he’s a willing tool of the national security state... If one were to read traditional media and never listen to what Barack Obama has actually said or written, then Barack Obama would seem elusive.  But if one actually listened to what he has said--and by any standard President Obama is particularly articulate are particularly non-evasive--then there is absolutely nothing at all elusive about him.  He has done pretty much exactly what he said he would do. 

First Agricultural Economics Workshop at NBER

Jeffrey Perloff has done a fantastic job organizing the first ever NBER workshop on agricultural economics.  Here 's the program.  I just booked my ticket and am really looking forward to it. This was a difficult thing to do and many kudos to Jeff for all his efforts.  Polite folks don't say it out loud, but the truth is that many econ folks see ag. econ. as the ugly stepchild of economics, and so it's quite a feat to have an ag. econ. grace the halls of the relatively exclusive NBER.  I hope this helps to whittle down silly intellectual barriers.

Rob Stavins is the best source for substantive review of all things related to climate policy

Here 's his review of the Copenhagen summit.

Cochrane's tips for empirical work

A little while ago I stumbled upon this post by Greg Mankiw that provides great list of resources with advice for graduate students. I highly recommend all grad students read all of these, especially the first two by Don Davis and John Cochrane. I'd like to emphasize Cochrane's tips for empirical work: These tips verge on “how to do empirical work” rather than just “how to write empirical work,” but in the larger picture “doing” and “writing” are not that different. What are the three most important things for empirical work? Identification, Identification, Identification. Describe your identification strategy clearly. (Understand what it is, first!) Much empirical work boils down to a claim that “A causes B,” usually documented by some sort of regression. Explain how the causal effect you think you see in the data is identified. 1. Describe what economic mechanism caused the dispersion in your right hand variables. No, God does not hand us true natural experiments very o

Googling "Inflation targeting" and "fiscal stimulus"

I'm encouraged by a recent uptick in discussion about inflation targeting among some influential economists. Brad Delong asks whether it's " time for some hand-forcing at the Fed ." This in response to a very nice post by David Beckworth , which was partly in response to Bernanke's  unconvincing answer to Brad Delong's question to Bernanke about why the Fed isn't targeting a 3% inflation rate. Paul Krugman then compares Ben Bernanke to Montague Norman . Mark Thoma still thinks the focus should be on fiscal stimulus rather than inflation targeting or quantitative easing (there are subtle differences betweeen IT and QE--see Krugman). I can understand why economists (a characteristically conservative bunch) would be worried about announcing a new inflation target and vigorously enforcing it with bond purchases.  Unhinging inflation expectations from a very stable 2.5 percent could have unanticipated consequences.  But aside from knee-jerk conservat

Paul Samuelson

Paul Samuelson was among the most influential economists in modern history. After Keynes and Friedman, at the moment I can't think of any economist with more sweeping and enduring influence.  In some ways his contributions were deeper than Keynes and Friedman. He developed the modern structure of economics--not just how we think the economy works, but how think about how the economy works, particularly the way economists use mathematics. He will be sorely missed. Update :  Krugman's tribute  Another update: Krugman summarizes some of Samuelson's biggest contributions .  I did not know Samuelson was the source of some of these.  Amazing...

I have not seen a single cogent explanation for why uncertainty about climate change implies inaction is the optimal policy

Via Brad Delong , Mark Kleiman tells us that "If anyone tries to tell you that uncertainty about climate change is a reason for inaction, he’s either a fool or a scoundrel. Probably a bit of both." That may be a little strong.  But if there is a cogent explanation for why uncertainty means we should do nothing, I have no idea what it may be. Brad Delong is a more precise.  He writes: There is one set of circumstances in which uncertainty is a reason for inaction: (a) the measures you would take would be expensive, (b) the measures you would take will be irreversible, and (c) you will get a lot of new information soon to help you judge the situation better. That set of circumstances does not apply here. I agree.  Because the one uncertainty-related rationale for doing nothing is an option value--the value of waiting to learn more about the best course of action.  Option values are generally very small.  They are especially small right now because (a) the amount of new

Econ 101 Analysis of Cap & Trade

(To read small text, click for larger slide)    

Where are the incentives on the demand side of Waxman-Markey?

Update:  I really need to eat some crow here.  The demand side incentives are in place on Waxman-Markey, so long as utilities pass through the value of permits to consumers in "lump-sum" fashion as the bill prescribes (see Stavins , with hat tip to 'R' in the comments of this post).  Darn it all.  My apologies.  I now remember reading this post by Stavins.  I'm going prematurely senile... The key idea underlying cap-and-trade is to create a market price for carbon emissions that wouldn't otherwise exist. While this provides a useful incentive to cut carbon emissions, it also means higher energy bills for the consumer. But a clever idea in the Waxman-Markey bill limits the price effect for consumers.** It does this by issuing a share of the tradeable carbon permits to local utility distributors.  Local utility companies are regulated not-for-profit enterprises due to their status as a natural monopoly.  Thus they are not free to charge consumers any price

Climate Change Really Shouldn't be a Big Deal

For all the media attention and research focus on climate change, and the potentially dramatic implications of warming currently predicted, it is kind of amazing how small a deal this really should be. Why a small deal?  No, I'm not a denialist.   It's a small deal because the costs of curbing greenhouse gas emissions are probably very small if done in an intelligent way.  And Waxman-Markey, while probably far from ideal policy, does seem to get a lot of the basics right.  In fact, all anyone talks about these days are market-based approaches to solving the problem (carbon taxes or cap-and-trade), so I'm optimistic that if policy is implemented, it will at least get first-order efficiencies right.  That is a huge victory for economics.  But the longer we wait to do something the more expensive it gets. Krugman, as usual, is able to clearly and concisely cover a lot of key issues .  I think he's right on almost all accounts here.  The science and the economics back u

100 Best Blogs for Socially Minded MBAs

Here's a pretty cool link.   Greed, Green and Grains in number 20. I don't know all of these blogs, but I like the mix and the way it is organized.

A nice summary of various climate issues

Brian Angliss over at Scholars and Rogues has written a very nice summary of climate modeling and geo-engineering issues.   Nominally it's about Levitt and Dubner's unfortunate combination of arrogance and ignorance.  But even if you could give a hoot about Superfreakonomics, there's a lot of meat here, and useful links too.

Nature Editors on the climate/email controversy

Here's the link Nature 462 , 545 (3 December 2009) | doi :10.1038/462545a; Published online 2 December 2009 Stolen e-mails have revealed no scientific conspiracy, but do highlight ways in which climate researchers could be better supported in the face of public scrutiny. The e-mail archives stolen last month from the Climatic Research Unit at the University of East Anglia (UEA), UK, have been greeted by the climate-change-denialist fringe as a propaganda windfall (see page 551 ). To these denialists, the scientists' scathing remarks about certain controversial palaeoclimate reconstructions qualify as the proverbial 'smoking gun': proof that mainstream climate researchers have systematically conspired to suppress evidence contradicting their doctrine that humans are warming the globe. This paranoid interpretation would be laughable were it not for the fact that obstructionist politicians in the US Senate will probably use it next year as an excuse to stiffen the

Research calls...

My semester free from teaching is quickly coming to an end. And I'm in a panic. Because the stack of unfinished papers on my desk is not out the door. Yet.  So I'm scrambling to finish them before I have to teach again. I'm putting the finishing touches on a really cool paper that measures the incidence and budgetary cost of moral hazard in the U.S. crop insurance program.  I'm also finishing up a consulting project surrounding an environmental impact statement for the Conservation Reserve Program.   And several other papers that need revision very soon. Anyway.  That's my excuse for light posting these days...

China approves GMO corn and rice

Here's the story at Bloomberg. Interesting stuff, but I suppose this was just a matter of time.  The same will happen in other developing countries, too, I suspect.  Especially if prices keep going up, I suspect resistance to GMOs will vanish. But (there's always a but...) I won't believe the yield gains until I see them.  Why? China's yields have already grown more than anyone else's in the past 50 years.  (Hopefully I'll post a plot showing that one day when I have some time.) The reason that matters is that GMOs haven't really boosted yields in places where yields are already high.  Mainly they just save labor and input costs, saving pesticide spraying and making herbicide spraying really easy. There have been some yield gains in the poorest developing countries and so there may be some gains in China.  But given how much things have already improved there, I'm skeptical. And the comparison in the Bloomberg article to U.S. yields is kind of si