January 31, 2003 • 11:17 am
Steven Pinker voices support for economics education at all levels. I have to agree!
How to Get Inside a Student’s Head
by Steven Pinker
Finally, a better understanding of the mind can lead to setting new priorities as to what is taught. The goal of education should be to provide students with new cognitive tools for grasping the world. Observers from our best scientists to Jay Leno are appalled by the scientific illiteracy of typical Americans. This obliviousness leads people to squander their health on medical flimflam and to misunderstand the strengths and weaknesses of a market economy in their political choices.
The obvious solution is instruction at all levels in relatively new fields like economics, evolutionary biology and statistics. Yet most curriculums are set in stone, because no one wants to be the philistine who seems to be saying that it is unimportant to learn a foreign language or the classics. But there are only 24 hours in a day, and a decision to teach one subject is a decision not to teach another. The question is not whether trigonometry is important — it is — but whether it is more important than probability; not whether an educated person should know the classics, but whether it is more important to know the classics than elementary economics.
This is not just a question of “relevance” to everyday life; these fields are as rigorous and fundamental as those in traditional curriculums.
Filed under: Economics, Education, Teaching
January 29, 2003 • 12:01 pm
In a recent series of articles in the Washington Post, yet another writer confuses the stock market with the economy. (See below.) I’ve fumed about this before (with nice graphs as well), but it looks like I need to say it again.
The “Bubble” of the late 1990’s was in the stock market. Various factors led to stock prices that were “too high” and that rose “too fast.” Eventually the stock market bubble burst, leading to large declines, especially in the technology sector.
The economic growth of the 1990s, however, was real: unemployment declined to record lows, growth was relatively high, incomes grew, and poverty declined. These were real things – cars, houses, ect. – and economic growth had real, tangible, positive consequences for real people.
Do not confuse the two! It was not a “Bubble Economy,” it was a “Bubble Stock Market.”
More on market bubbles
In a Bubble Economy, Recognition Comes Too Late (washingtonpost.com)
By Steven Pearlstein
Washington Post Staff Writer
Sunday, November 10, 2002; Page A01
Mention the Bubble Economy and, for many Americans, it now conjures up images of shredded documents and half-built Houston mansions, depleted pension accounts and executives being led off in handcuffs. But it didn’t start out that way.
Roughly from 1995 through the end of 2000, the Bubble Economy was known as the new economy, and nearly everyone thought it was a marvelous thing.
Billions of dollars poured in from all over the world from people hoping to get in on the ground floor of the Internet, a medium that held the promise of transforming not only the economy, but life as we knew it. Stock prices rose higher and faster than at any time in history, making the ups and downs of the Nasdaq Stock Market a national obsession.
Now, of course, we know it wasn’t all real, and it certainly wasn’t enduring. Twenty months after it tipped into recession, the economy is barely growing. Stock prices are back where they were four or five years ago. And nobody is sure how much of the revenue and profit growth during the bubble was real.
Filed under: Economics, Economy, Finance
January 29, 2003 • 11:24 am
The Congressional Budge Office (CBO) today released updated estimates for the federal budget in which it projected a $199 Billion deficit for 2003.
One interesting part of the document is that it seems as thought the CBO believes that the recession that began in March of 2001 came to an end a year ago.
It is customary, when making time-series charts of macroeconomic data, to shade the time periods during which the economy is in recession. The charts produced in their recent publication show the end of the recession in early 2002 (January?).
In addition, the document indicates that there is a possibility that another, separate recession is possible.
The “Outlook” publication is usually very good reading if you want a nice summary of the current economic condition, economic forecasts, as well as possible risks to the economy.
The Budget and Economic Outlook: Fiscal Years 2004-2013
The economy has moved from the recovery period after the recession into an expansion phase, which means no more than that the level of real gross domestic product has exceeded the peak that it reached in the fourth quarter of 2000.”
Double-Dip Recession. The economy could turn rapidly worse in 2003 if the imbalances that precipitated the last recession have not been fully worked out. … The economy could tip into recession if consumers slow the growth of their spending to much below the growth of their income.
Filed under: Data, Economics, Economy, Fiscal Policy, Monetary Policy, Policy, Recession
January 25, 2003 • 12:31 pm
Reuters is reporting that the Department of Labor’s layoff report might be back in business…
Forbes.com: Senate seeks to revive canceled U.S. layoffs report
WASHINGTON, Jan 24 (Reuters) – The Senate is seeking to revive a monthly Labor Department report on U.S. layoffs, which got sacked last year because of a lack of money.
Tucked away in the $390 billion Senate version of the federal budget for 2003 passed late on Thursday was $6.6 million to reinstate the Mass Layoffs Statistics program, which tracked company layoffs of at least 50 workers over a five-week period.
Data compiled from the layoffs reports was used for allocating federal funds for dislocated workers and analyzing unemployment patterns.
Sen. Edward Kennedy, a Massachusetts Democrat, sponsored the amendment to renew the program’s funding and accused the Bush administration of canceling the program for political reasons. Unemployment was 6.0 percent in December and the number of long-term jobless has also been on the rise.
“The Mass Layoffs Statistics are one of the best measures we have to understand the impact on workers of changes in the economy,” Kennedy said.
The program had also been canceled in 1992, during the terms of the first President Bush. It was reinstated in 1994 during the first Clinton presidency.
Filed under: Data, Economics, Policy
January 24, 2003 • 11:51 am
With the Superbowl looming – I am reminded of the so called “superbowl indicator.”
The idea is that a victory for the NFC team predicts a good year for the stock market. I haven’t looked at the data in a few years, so I thought I would do a quick regression.
In 22 of the last 33 Superbowls (since 1970: that’s all the S&P data I could find) the predictor worked correctly.
Now, I should note that the analysis below is not valid for the following reason – in most years the stock market goes up, and, in the past, in most years the NFC has won the superbowl. This makes the analysis very likely to produce a spurious correlation, that is, an apparent relationship even though none exists in reality. (Technically, both series are likely to be non-stationary, and thus appear to yield a correlation even if there is no relation.)
There are ways to do a more correct analysis – but where’s the fun in that?!
How big is the effect?
By my calculations, the average return when the AFC has won is 7.2% while the average when the NFC has won is 17%. These numbers and the significance of the NFC effect can be found by doing a simple regression of the form:
S&P Return = 0.0716 + 0.0977 * (NFC win)
R2 = 0.080; Standard errors in parenthesis.
The regression shows that the t-stat on the NFC dummy (=1.642) is not significant at the 5% level – (but it is at the 15% level!)
So, there is it. There’s big numerical difference in past average yearly returns (almost 10%), but the difference is not statistically significant. Perhaps we need more data…
Click on “more” for the data.
Read the rest of this entry »
Filed under: Economics
January 23, 2003 • 7:18 pm
Intrigue at the CEA! The wall street journal reported that the head of the president’s council of economic advisors, Glenn Hubbard, would be stepping down “by spring.”
It looks like the source for this information was “administration officials.”
Hubbard, however, says that reporters never talked to him and denies that he has immediate plans to leave.
I think Hubbard needs to have a chat with Karl Rove sooner rather than later!
In case you haven’t been following the controversy, Hubbard has been taking flak for saying, recently, that deficits do not impact interest rates, even though earlier writings (i.e. his textbook) state the reverse. See DeLongs’ website for the nexus of the Hubbard-deficit problem.
Bush Economist Hubbard to Leave Post – WSJ
Bush Economist Hubbard to Leave Post – WSJ
Filed at 8:47 a.m. ET
NEW YORK (Reuters) – The chairman of the Council of Economic Advisers for the White House, Glenn Hubbard, plans to step down by spring, the Wall Street Journal reported on Thursday.
He is likely to be succeeded by Harvard University economist Gregory Mankiw, the newspaper said.
Hubbard plans to return to Columbia University for personal reasons, administration officials told the Journal. They said that the White House would have preferred that he remain.
White House’s Hubbard: Departure Report Premature
Filed at 9:37 a.m. ET
PHILADELPHIA (Reuters) – White House economic adviser Glenn Hubbard said on Thursday a newspaper report that he was planning to leave the administration was premature, but that he did not plan on being a “lifer” in the White House.
“It’s too soon to write my obituary. It’s a bit premature. They didn’t talk to me,” Hubbard told reporters, referring to a Wall Street Journal newspaper article saying he planned to leave his post as chairman of the White House Council of Economic Advisers and return to academia.
Filed under: Economics
January 22, 2003 • 1:23 pm
According to the Fed’s survey of consumer finances, stock ownership is now over 50% for the first time. (See below for the recent article on the current SCF.)
Why the increase? James Poterba looked at increased ownership between 1989 and 1998 and looked at various possible explanations.
-changes in risk aversion
-changes in transaction costs (monetary, information, increased adverstising)
-increases in product diversity
-changes in perceived risk and return
-changes in pension structure (IRA’s, 401k’s, etc.)
He concluded that “[t]he rapid growth of stock ownership during the 1990s has not been concentrated in any particular demographic or socioeconomic group, but rather reflects a broad increase in stock ownership across many different groups. The two most important sources of the growth in stock ownership, the expansion of retirement saving plans and the growth of investing in equity mutual funds, affected the middle and upper middle class more than they affected very high income households.” See The Rise of the “Equity Culture:” U.S. Stockownership Patterns, 1989-1998, by James M. Poterba.
2003 Recent Changes in U.S. Family Finances: Evidence from the 1998 and 2001 Survey of Consumer Finances, by Ana M. Aizcorbe, Arthur B. Kennickell, and Kevin B. Moore
Data from the Federal Reserve Board’s Survey of Consumer Finances show a striking pattern of growth in family income and net worth between 1998 and 2001. Inflation-adjusted incomes of families rose broadly, although growth was fastest among the group of families whose income was higher than the median. The median value of family net worth grew faster than that of income, but as with income, the growth rates of net worth were fastest for groups above the median. The years between 1998 and 2001 also saw a rise in the proportion of families that own corporate equities either directly or indirectly (such as through mutual funds or retirement accounts); by 2001 the proportion exceeded 50 percent. The growth in the value of equity holdings helped push up financial assets as a share of total family assets despite a decline in the overall stock market that began in the second half of 2000.
The level of debt carried by families rose over the period, but the expansion in equities and the increased values of principal residences and other assets were sufficient to reduce debt as a proportion of family assets. The typical share of family income devoted to debt repayment also fell over the period. For some groups, however–particularly those with relatively low levels of income and wealth–a concurrent rise in the frequency of late debt payments indicated that their ability to service their debts had deteriorated.
Full text (174 KB PDF)
Filed under: Economics, Finance
January 15, 2003 • 3:45 pm
In a defeat to the public dissemination of intellectual property and ultimately the consumption of knowledge as a whole, the Supreme Court, in the much-publicized Eldred v. Ashcroft case, ruled in favor of Attorney General Ashcroft and for extending copyright protection to 70 years after the death of the author.
Eldred v. Ashcroft Opinion
From a post on October 11th:
17 economists spoke out against the copyright extensions contained in the new law (from 50 to 70 years) in a filing to the Supreme Court.
On Eldred v. Ashcroft
17 Economists: Roy T. Englert, Jr. George A. Akerlof, Kenneth J. Arrow, Timothy F. Bresnahan, James M. Buchanan, Ronald H. Coase, Linda R. Cohen, Milton Friedman, Jerry R. Green, Robert W. Hahn, Thomas W. Hazlett, C. Scott Hemphill, Robert E. Litan, Roger G. Noll, Richard Schmalensee, Steven Shavell, Hal R. Varian, and Richard J. Zeckhauser
From the Amici Brief:
“Taken as a whole, it is highly unlikely that the economic benefits from copyright extension under the CTEA outweigh the additional costs. Moreover, in the case of term extension for existing works, the sizeable increase in cost is not balanced to any significant degree by an improvement in incentives for creating new works. Considering the criterion of consumer welfare instead of efficiency leads to the same conslusion, with the alteration that the CTEA’s large transfer of resources from consumers to copyright holders is an additional; factor that reduces consumer welfare.”
Filed under: Economics, Policy, Technology
January 14, 2003 • 2:15 pm
Looks like the economics profession has found a gossip columnist. It’s about time!
Economic Principals: Shleifer to Leave Harvard?
Filed under: Economists
January 9, 2003 • 2:58 pm
Robert Barro gives the NCAA the “best monopoly” award.
Filed under: Microeconomics