Showing posts from June, 2010

Lake Wobegon Effect Goes Viral

We seem to have a problem in higher education . What are we going to do about grade inflation?  Maybe this is a problem that will eventually cure itself.  Graduate programs and firms will soon need to start adjusting grade point averages for the institutions and departments from which they are applying.  Some probably do this already, but the transactions costs involved must be tremendous.  I'm quite sure many do not make these adjustments, which is why we're seeing such rampant grade inflation.  This just isn't sustainable. I think I smell a business opportunity here: We need a ratings agencies for institutions of higher education that will allow for quick comparisons of GPA across departments and institutions.  I can imagine a number of ways of doing this.  But it would require willful participation of the various institutions to supply data on grades of all students and classes (with names stripped, of course). Is anyone doing this?  I seem to recall reading or he

The Renminbi

So China says they are (finally) going to revalue their currency and "gradually" move toward a floating exchange rate. NY Times article here . I think that is good news.  I really hope it happens soon. I'm a bit outside my element here, but I don't see how they can do this gradually.  Well, maybe if the keep the timing and size of the adjustment close to their vest they can keep some control.  But then what's the point of revaluing? Update: I should probably refrain from oblique posts.  To the commenter who explains why China has pegged the Yuan to the dollar and why, in principle, they are revaluing: Yes I understand.  My question had to do with the "gradually" part.  The point is that once the market knows China is going to revalue or stop pegging, the market won't let China do it gradually.  Thus, when China says they are going to do this gradually it's almost as if they are announcing nothing at all. This is something we need to see to

Republicans dump market-based solutions to environmental problems and embrace command and control

While the so-called "socialists" push for market-based solutions. We live in a very strange world. Here's  David Leonhardt : There once was a time when the government relied on a very blunt way of regulating the economy. It told companies and individuals what they could do and what they could not do. These were the days of command-and-control regulation. But then came the market revolution of the last three decades. With the Soviet empire collapsing, the United States economy growing more rapidly than Europe’s, and newly market-friendly China and India booming, people saw the drawbacks of command and control. Governments were usually better off avoiding outright bans and instead giving people incentives to behave in productive [less costly and less polluting] ways.... ...Unfortunately, the great economic strength of market systems like cap and trade also happens to be their political weakness. They set prices and allow people to react. In the process, mar

Are stock prices showing mean reversion?

I know stocks are supposed to follow a random walk.  And they pretty much have.  At least over short run (days, weeks, months, and years), if not over the long run (10-20+ years). But recently--say the last six months or so--doesn't there seem to be a lot more regression to the mean in short-run price movements?  Are hedge funds making a killing by buying low and selling high? This is just armchair speculation.  I haven't done any unit root tests.  So maybe I'm all wrong about this.

The Spill

I haven't had much to say on the Big Spill in the Gulf.  Despite the media frenzy, I think it's still hard to tell how all this will shake out economically speaking. Although I hear environmental economists are being lined up to value damages...  There's a clear hit to tourism in the Gulf already.  But then there will be gains in other places--people will go to the mountains instead of the beach.  If this stuff hits Miami watch the numbers explode.  If it screws up most the southern beaches then scarce and less perfect substitution possibilities will make welfare impacts much larger. How deep are BPs pockets?  How limited is their liability, legally speaking?  Pretty deep and I don't know. In comparison to Exxon Valdez, it looks like the bigger numbers will come from relatively more tangible and measurable things--like tourism and recreation--as opposed to more controversial measures, like non-market values of birds and turtles. It seems to me BP was in fact irr

What do commodity prices reflect about broader economic expectations and risks?

Gold prices are pushing repeatedly record highs.  But there is no inflation on the horizon; indeed, deflation is a far greater risk right now.  This can be gleaned by the fact that prices of other commodities, ranging from oil to minerals to agricultural commodities, are trending down, by record-low long-term treasury rates and low rates on inflation-indexed bonds, and by high unemployment and stagnant wages. The trend in CPI data is down too. What gives?   Jim Hamilton  nails it: There's a common thread to all the above figures, and it's not fears about inflation. Instead it's worries about the level of real economic activity, showing up in a flight to safety. U.S. Treasuries remain the instrument of choice for investors who think nothing looks safe. But with the long-run fiscal challenges facing the United States, are 10-year Treasuries really the safest place to put your money? The yellow metal seems to be one way some people are hedging that bet. The broader economy h

Advice for students taking an economics PhD prelim exam

It's a little late for advice as I'm in the midst of grading Ph.D. preliminary exams.  It's the first time I've done this and it is an eye-opening experience.  The experience inspires me to take a break and write down some advice for future students on how to study and take the prelim exam: Guidelines for studying for a PhD preliminary exam in microeconomics: 1. Read a lot of economics at different levels and try to connect the dots.  You’ve just finished your first-year Ph.D training studying more advanced books.  Now go back and re-explore undergraduate textbooks.  You may see them in a different light.  When reading principles-level material, stop at times to think about how you might approach the same material at a more advanced, mathematical level.  When reading more advanced material, stop at times to think of practical real-world applications and how you might communicate concepts in non-technical ways to non-economists. (a) Read at least two good principle

Is corn becoming more or less tolerant to drought and extreme heat?

At Bioenergy Camp in Perry Iowa, I presented a paper with Wolfram Schlenker on the evolution of heat tolerance in corn.  I blogged about this paper awhile back.  The paper will be a chapter in a forthcoming NBER volume, Climate Change: Past and Present . My seminars sometimes provoke a lot questions.  I'd like to think this a good sign that my talk is interesting.  Maybe I just need to work on being clearer  This talk, however, provoked a particularly sharp response from Ted Crosbie, Vice President of Global Plant Breading for Monsanto.  He didn't say why, but Dr. Crosbie claimed our results were wrong. Our main finding is that extreme heat tolerance in Indiana increased from 1940 to 1960 and then declined between 1960 and the present.  The turning points--1940 and 1960--coincide nicely with adoption of double-cross and single-cross hybrid corn.  Our estimates show relative tolerance to extreme heat at the end of our sample (2005) to be close to than in 1940.  That's t

Nice places for ag/energy/environment economics workshops

Nick Flores puts out a call: Dear Colleague, I write to announce that this year's CU Environmental and Resource Economics Workshop will be held on September 17-18 at the Lionsquare Lodge in Vail, Colorado.  Deadline for abstracts is August 1.  A link to the workshop website which has more information is provided below.  Please pass this announcement on to colleagues and graduate students. We have our own Camp Resources that is held in nice places too.  This year we're on the beach near Wilmington.  In the odd years we're in the mountains (Asheville).  The quality of the presentations last year (mostly grad. students) was excellent.  This year's program can be found here: And finally, you may not think of Perry, Iowa as a nice place for a workshop.  But the hotel used for Bioenergy Camp was amazing, and it was a perfect environmen

A critique Robert Pindyck's model to estimate maximum plausible willingness to pay to prevent global warming

So I've been completely buried with finals and grading and PhD prelim exams and putting my tenure packet together and working with a visiting out-of-town colleague on a old paper we really need to finish up, going to a wonderful Bioenergy Camp in Perry Iowa (muchos gracias to Jim Bushnell), and a little surfing break in Costa Rica....etc..etc... Despite all this, I've long been meaning to write a critique of Robert Pindyck's seminar at Duke a few  weeks ago.  The talk was about the model he uses to grapple with uncertainty about climate change and its impacts, and what this uncertainty implies about the most we, as a planet, should be willing to pay to curb greenhouse gas emissions. For the record:  I really like Pindyck's articles and books.  There are few economists who write theory as clearly and elegantly as he does--you can learn both the math and the economics from him.  With Pindyck, there is no "lets use math to obfuscate how shallow my ideas really are