Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Saturday, March 26, 2005

Explicit Anti-Semitism

Many of you living outside Canada may not have heard about this story.

Two teachers at the Abraar Islamic school in Ottawa were suspended yesterday pending an investigation into the encouragement or incitement of hatred against Jews expressed in a young student's violence-laden writing project.

Principal Aisha Sherazi said the seven-member school board and administration were "shocked" by teacher involvement in the project that was brought to her attention by the Citizen yesterday morning, and decided at an emergency meeting to suspend the instructors.

One teacher was apparently involved in the artistic production of the eight-page story of killing and martyrdom. Handwritten in Arabic and titled The Long Road, the cover page was illustrated by a drawing of a burning Star of David beside a machine-gun and Palestinian flag atop the Dome of the Rock, an ancient Muslim shrine in Jerusalem.

The other teacher had written comments on the student's paper, praising the boy's story of revenge for the assassination by Israeli forces a year ago of Sheik Ahmed Yassin, a co-founder of Hamas, in retaliation for suicide bombings against Israeli civilians.

"God bless you, your efforts are good," the teacher wrote on the title page. "The story of the hero Ahmed and the hero Salah is still alive. The end will be soon when God unites us all in Jerusalem to pray there."

On the margins inside the story, the teacher had written a note endorsing the boy's fantasy of a young Ahmed Yassin and his friend, Salah El-Dine, ambushing Israeli soldiers.

"Without thinking, Ahmed took his M16 machine-gun and threw the bombs, and he showered the Jews; this resulted in the killing of the soldiers," the boy's text reads.

"Salah said: 'You killed them all.' Ahmed answered: 'Praise be to God.'"

What are the odds this was an isolated incident, with no other anti-Semitism being taught or occurring in that school? probably near zero. The place should be shut down. Failing that, the classrooms and assignments should be constantly monitored.

It is little wonder that Middle Eastern Muslims are targeted as suspects for terrorism if this school has teachers like this.

Thanks to BenS for this link.

The Busiest McDonald's?

I love the food at McDonald's. I have not been to this one, though.

It is reportedly the busiest in their entire chain.

I worked in a McDonald's in 1961, when burgers were 15 cents, and the only people inside were the employees -- customers walked up to the window, bought their food, and either ate in their cars or took it home.

Stroke Recognition:
Three Easy Questions

Last week my sister sent me one of those soppy internet stories about someone who had saved a friend's life. It ended with a plea that I pass it on to others so that others' lives might be saved.

This one involved early recognition of a stroke by asking three simple questions. The whole thing looked suspicious to me, so I "Snoped" it, meaning I checked it out on, an invaluable resource on the web.

The advice in the story from my sister turns out to be not only correct but useful and easy. My wife has now printed off the symptoms and questions and posted them on our refrigerator.

The warning signs of a stroke are:
  • Sudden numbness or weakness of the face, arm, or leg, especially on one side of the body.
  • Sudden confusion, trouble speaking, or understanding.
  • Sudden trouble seeing in one or both eyes.
  • Sudden trouble walking, dizziness, loss of balance or coordination.
  • Sudden, severe headache with no known cause.
The three easy questions are:

  • ask the individual to smile.
  • ask him or her to raise both arms.
  • ask the person to speak a simple sentence.
If s/he has trouble with any of these tasks, call 911 immediately, nd
describe the symptoms to the dispatcher.
There is much more valuable information, along with some informative links, at the Snopes site. I'm always concerned about false positives, myself, but these look like a good start.

You might also consider donating to the upkeep of Snopes.

Friday, March 25, 2005

Growth in Gubmnt

I strongly recommend that you get on the mailing list of the Dallas Fed. A recent article in Southwest Economy about social security and medicare - no free lunch - points out that continually rising costs of these programmes are likely to account for most of the projected growth in gubmnt spending in the U.S. What is really astounding is the projected share of GDP that will be taken up by (non-interest!) gubmnt spending by the year 2050.

Who Responds to What Incentives? Part II

Why do people visit pornography sites on the internet? Is it curiosity? by accident? for prurient interest? Unfortunately these data do not tell us the motives of these people or the incentives they face.
  • 51% of pastors say cyber porn is a possible temptation. 37% say it is a current struggle (Christianity Today, Leadership Survey, December 2001). 4 in 10 pastors have visited a porn site (Christianity Today, Leadership Survey, December 2001).
  • 17.8% of all "born again" Christian adults in America have visited sexually-oriented Websites (Zogby survey conducted for Focus on the Family, 2000).
[thanks to Rory for the tip]

Compare the above with this quote in "Cheap Talk" by Tyler Cowen of the Marginal Revolution:

Teenagers who take virginity pledges -- public declarations to abstain from sex -- are almost as likely to be infected with a sexually transmitted disease as those who never made the pledge, an eight-year study released yesterday found.

You can read some possible explanations here.

How to Rite Good

New Zealand MP, Rodney Hide, posts this about New Zealand educational testing. His comment:
it’s got to be bad when your exam system is being lampooned ….

Too bad there aren't more politicians like him.

The Steroid Hearings

In case you missed them, here is a summary. Be sure to check out the Palmero testimony.
[h/t to Off-Wing Opinion for the link]

The U.S. Sugar Industry
Under Attack on Three Fronts

U.S. consumers pay a price for sugar that is roughly 50% higher than it would be if there were no import barriers in the U.S. sugar industry. The reason these barriers still exist is that the sugar industry lobby has been very effective in maintaining protection of its members. But the sugar industry is under attack.
  1. The U.S. is continuing to negotiate free-trade agreements with countries in Central and South America, where sugar can be grown at substantially prices than it can in the southern U.S.
  2. There is strong pressure to reduce agricultural subsidies to industries like sugar, partly for trade reasons and partly for efficiency reasons.

Some producers are revamping their production facilities and might be able to withstand these changes. See here for one example (h/t to BF for this link). United States Sugar Corp is increasing its capital (with embedded technological change) and reducing labour inputs.

By 2007 -- when the new automated mill is scheduled to start crushing
cane -- the workforce from the two existing mills will be cut in half, dropping from 576 workers to 226...

Big Sugar is facing pressure on various fronts: Sugar processors and environmental groups have tangled for years over cleanup of the Everglades, real estate development is coming closer -- especially in Palm Beach County, and global free trade has meant Third World countries are increasing their demands that developed nations open their markets by eliminating subsidies, price supports and tariffs. The trend could upset the U.S. sugar quota program....

Now farming on 196,000 acres in south-central Florida, the company is
determined that its capital improvements will be the key to its future.
''This company is not sitting around waiting for the government to
protect us from foreign competition,'' [said Robert Coker, U.S. Sugar's senior vice president, public affairs.].

The third front for the attack? The war on obesity, which will not be nearly so effective so long as we consumers do not individually bear the full health costs of our eating and exercise decisions. In fact, sugar consumption, per capita, is increasing.

Thursday, March 24, 2005

Colour Help! Please!

If you have a good sense of colours and design, please go to The Emirates Economist and offer some help with his blog! It was okay with the white background. But then he changed it to a dark yellow that captured the essence of "yellow journalism" -- something I am all in favour of recognizing in the blogosphere. Unfortunately the dark yellow reduced the contrast and made it difficult to read. And now (unless he has changed it again), it is 1950s institutional green.

The man needs help! If you have suggestions, post them in the comments section here -- he'll see them.

And, no, we don't want any suggestions from Sparky.

Update: for, it looks as he has opted for white rather than hot pink.

Terri Schaivo and Euthanasia

For the life of me, I cannot see the difference between pulling the feeding/hydration tube and euthanizing her. Also, see this.

Testosterone, Head-butting, and Suicide.
Men: Reduce Those Negative Cross-Partials!

What happens to male lions who are not king of the pride?
What happens to male muskox who do not win the head-butting contests for dominance of the herd?
What happens to boxers who do not become champions?
What happens to students who do not become National Merit Finalists?

What happens to people in general, but especially men, who have high expectations that they are incapable of meeting?

It is possible that when expectations are out of line with reality, the pain felt when reality strikes is quite severe.

Among some types of animals, males seem genetically coded to expect to be number one in the group. Those who lose are banished from the group and die at a young age.

It should not be surprising to learn that for human suicides, then,

Men with low IQ scores and only a primary education were no more likely to kill themselves than men with high IQ scores and a higher level of education. But men with low IQ scores and higher education were at a greater risk of suicide. And men with low IQ scores and highly educated parents were at the highest risk of all.

''If you can't live up to the expectations of well-educated parents,'' said [researcher Finn] Rasmussen, ''it could make you more vulnerable.''

For the story, click here [link courtesy of Tyler Cowen at Marginal Revolution].

One possible suggestion for reducing suicide follows immediately: lower people's expectations, especially in a relative sense, and especially for people whose expectations are higher than their abilities. But that solution gives rise to some disturbing thoughts.

1. Who gets to decide whose ability is well-below their expectations?

2. What effect would this strategy have on entrepreneurship and growth? If economic growth is the result, in part, of competition to make oneself better off relative to some reference group, i.e., if we have interdependent utility functions (with negative cross partials with respect to a broad reference group even if we have positive cross partials with respect to those we love), then if we induce people to compete less (develop smaller negative cross partials!), we might end up with fewer suicides but also lower economic growth. Perhaps this is what Bob Frank wants and what Tibor Scitovsky wrote about in his classic piece, The Joyless Economy.

3. Ohmygod. Does this mean all that self-esteem stuff might be important after all?
More seriously, focusing on lowering peoples expectations doesn't make much sense if doing so doesn't ask them to deal with the realities they face.

For some of my earlier thoughts on economics, evolution, and suicide, see here and here.

The Canadian Health System

Brian Ferguson sent me this piece (posted with his permission), to which I have added some links:

Looking at the posts by Kevin Brancato at Truck and Barter, and Don Boudreaux at Cafe Hayek, it seems to me that they miss one interesting point, which is that the fundamental cause of the problems of the Canadian health care system is the same as the fundamental cause of the problems of the American health care system. They just manifest differently. In both cases the problem is a system which holds the price down.

When Canada introduced Medicare, we didn't create a whole new structure. The doctors strike in Saskatchewan, driven by fears that Tommy Douglas was going to impose a British style NHS, showed Ottawa that that approach wouldn't work. Instead, we basically just took over the existing private, not-for-profit doctor sponsored insurance plans.

Literally in some cases - some provinces simply contracted with the pre-existing plan in their province (the market in health insurance before Medicare wasn't exactly competitive) to run the provincial Medicare plan. Same plan, same managers. That continued in some provinces until Ottawa decided that it violated the "publicly administered" requirement for Medicare (a nonsensical conclusion, but that's what they decided). Those older plans were basically modeled on the American Blue Cross, Blue Shield system.

In the early days of Medicare, some provinces had co-payments, at least in the sense of permitting extra billing. It was only with the Canada Health Act that extra billing was banned and the price out of pocket to the patient fell to zero everywhere. [The beginning of the end of a great health-care system in my opinion - JP/EE]
A zero price encourages overuse, but that's not unique to the Canadian system. Remember that the American health economics literature from the 1970s focussed very tightly on the welfare losses associated with excessive health insurance; welfare losses which resulted from the fact that the co-payment, service insurance structure of US health insurance also drove the price of care way down. [see here and here]

Both systems, in other words, drove the price out of pocket to the insured patient down to a level well below the marginal cost of the service (or commodity, since drug insurance takes the same form).

In both cases the fact that the patient paid only a fraction of the price of care out of pocket increased the quantity of care demanded. In the Canadian case, the government responded by putting a ceiling on price - doctors are price takers who have to accept the MEdicare fee as payment in full - and restricting quantity. In the American case, since the market for medical goods and services is imperfectly competitive (if only because patients can form brand loyalties over doctors), the effect of co-payment and co-insurance type service insurance was ultimately to drive the price of care up. The insured paid less than the market price out of pocket, the uninsured were faced with the full market price, which was often above the choke price on their demand curves.

The low out of pocket price is a major part of the reason the US has the world's most expensive health care system. A paper in Health Affairs not too long ago found that, while medical indication played some role, the major factor determining whether a patient with arthritis took COX-2 inhibitors was the generosity of their insurance cover. More generous cover means lower out of pocket price. Demand curves slope downward.

Part of the reason drug expenditures are so high is that insured patients often refuse to take nonprescription alternatives when there is a prescription drug available, because insurance covers prescription drugs but generally not non-prescription ones.
[I know of one physician who used to prescribe Ibuprofin 300s
because they were not available over-the-counter, which meant his patients didn't have to shell out a couple of dollars for what I call "Vitamin I"; once the dispensing fees were added, the price was over $10. -- JP/EE].
Even though the prescription drugs are more expensive - add more to total health care expenditures - they are cheaper to the patient. Look at what happened to the price of Claritin in the US when it lost its prescription status. (It was already a nonprescription drug in Canada, so here it was no more expensive than the other drugs on the shelves around it in the drugstore.)

Truck and Barter and Cafe Hayek are right when they say that zero price is the source of the problems in the Canadian system, but it is also the source of the problems in the US system [my emphasis]. The only reason those problems look different is because of the different constraints imposed on the two systems. And Canadians who claim that our system is so much better than the American system (still too many of them running around loose) should take a close look at the fact that we get our drug and dental coverage through insurance identical to the type the American system uses.

Young Stud Auctions Himself Off
as Prom Date

Kip at "A Stitch In Haste" has this piece about a young man who auctioned himself off on E-bay as a prom date.
Stu Hemesath has earned $29.95 -- as a prom date. The high school senior from La Porte City auctioned himself off as a date on the Internet auction site eBay on Thursday. He will accompany Rachel Kay, 17, to her Cedar Falls prom. The two say they have never met....

Hemesath wasn't shy about his description, saying he's 5 feet 10 inches tall, 150 pounds, popular and a wrestler. He added: "I have a lot of girls telling me I'm pretty hot."
You have to love Kip's tagline:
Gee, whenever I offer $30 bucks to a hot male high school student to go out with me, I'm labeled a pervert. Discrimination sucks...
which leads me to wonder what would have happened if Kip had entered the bidding and won.

Wednesday, March 23, 2005

A Don't Miss Event

Whatever you're doing, drop it (unless you are one of my students) and drive to Mankato, Minnesota for this.

What Do Economists Do?

Phil Miller, at Market Power, has a great link to this summary of economists' methodology [his link is to the New Economist, which in turn links to Stumbling and Mumbling]. It helps explain why "there's no such thing as a suave economist." With the possible exception of Paul Davenport.

1. Economics is the study of trade-offs, of costs. ...Politicians, of course, hate the idea of trade-offs and costs.

2. Economists love counter-intuitive ideas. ...This leads to us stressing paradoxical notions – like the notion that outsourcing can be a good thing. Good politicians, by contrast, prefer sound-bites that corroborate the public’s prejudices.

3. Economists are like photographers - we love simple models. In particular ...we’ve loved models that yield bold, controversial but testable predictions.

4. Economists start from assumptions – or better still axioms – and see where they lead. ...Sometimes, though, they can lead to trouble.

5. Economists have a simple, brutal view of human nature – everyone’s rational (though not knowledgeable) and out for themselves. This makes us comfortable with conflict and argument, and uncomfortable about building alliances.

All absolutely true.

Alcohol Quiz

Here's another quiz linked from Cynthia's website. There's a woman who really knows her alcohol!

I expect that given this posting, Phil would do pretty well on the beer score.

My score?

Well my own preferences run to wine with screwcaps instead of corks.

Beer? I can't tell the difference between an oatmeal stout and Coor's Light.

Hard liquor? On the rocks, please - no need to adulterate it with any mix: " I like Coke, and I like Rum, but I don't like 'em mixed".

Here are my test results -- shameful, compared with Cynthia's.


Congratulations! You're 130 proof, with specific scores in beer (40) , wine (100), and liquor (104).

Screw all that namby-pamby chick stuff, you're going straight for the bottle and a shot glass! It'll take more than a few shots of Wild Turkey or 99 Bananas before you start seeing pink elephants. You know how to handle your alcohol, and yourself at parties.

My test tracked 4 variables How you compared to other people your age and gender:
You scored higher than 50% on proof
You scored higher than 50% on beer index
You scored higher than 50% on wine index
You scored higher than 99% on liquor index

It is interesting that the results should mention Wild Turkey. In a blind taste test I did with my younger son, Adam Smith Palmer, last December, I preferred WT to several other bourbon and sour mash whiskeys we had in the house.

Who Responds to What Incentives?

Speaking of alcohol...

Ordinarily, one would expect that lowering the blood alcohol content [BAC] limits that apply to automobile drivers would lead to reduced driving under the influence [DUI]. Maybe it does, but not always, according to a recent paper by Carpenter and Harris [abstract available at
this link; guest registration available for the entire paper].

Over the past two decades, states have toughened their adult drunk driving laws by setting the legal blood alcohol content (BAC) threshold at .08, down from .10. Although several studies have shown that these laws have been effective at reducing alcohol-related traffic fatalities, there is very little evidence on the underlying behavioral mechanisms through which .08 BAC laws achieve the fatality reductions. We estimate reduced form models of the effects of .08 BAC laws on a wide range of self-reported alcohol-related risk behaviors using large samples from the Behavioral Risk Factor Surveillance System (BRFSS) and the National Surveys on Drug Use and Health (NSDUH) from 1999-2003 – a period when 32 states’ .08 BAC laws went into effect. Models with state and year fixed effects provide no evidence that .08 BAC laws reduced alcohol-involved driving, and we similarly find no effects on drinking participation or the likelihood of binge drinking.
These results are enough to make one wonder whether (a) economics isn't as powerful an explanation as we'd like to think, and/or (b) there is something wrong with the study. But reading on, we see

We do find robust evidence, however, that .08 BAC laws reduced past month alcohol consumption among moderate drinking males by about five percent. These reductions are larger for older, college educated, and married men. Taken together with results from previous research on other drunk driving interventions, our findings confirm a general deterrence effect and suggest that tougher drunk driving laws work primarily by reducing alcohol consumption.

I'm not quite sure how this conclusion follows from their results. There's no evidence that lowering the BAC limits led to reduced alcohol-involved driving, yet tougher drunk driving laws work primarily by reducing alcohol consumption? Perhaps I am missing something.

What I see from these results is that people who have a lot to lose [older, college-educated, married men], and who probably were less likely to engage in DUI in the first place, cut back on their drinking when the BAC limits were lowered. They probably did so as a form of risk reduction; for them, drinking less is analogous to buying some specific insurance. But if, overall, lower BAC limits had no impact on alcohol-involved driving, how could the authors have possibly come to the conclusion they did?

If Not the U.S. Dollar, What?

I have argued before that I do not see what is holding up the value of the U.S. dollar on the foreign exchange markets. The Buttonwood column of The Economist agrees.

The fear that central banks are contemplating industrial action against the dollar—and the collective sigh of relief when it seems they are not—is part of a broader unease about the nature and solidity of America’s economic growth. Based, as it is, on mammoth consumption by both the private and public sectors—ie, on big trade and fiscal deficits—it needs foreigners willing to suspend disbelief and buy shiploads of securities denominated in a currency that has steadily lost value for about 40 years.

The point I have made in earlier postings goes beyond this concern about the U.S. dollar, though. Where else are people outside the U.S. going to invest their money? What else would serve as a good reserve? Gold? Industrial Diamonds?

King Banaian says here that he thinks the U.S. dollar could very well have bottomed out because the Euro is likely to be in such big trouble in the future.

Some of my colleagues, however, think the U.S. dollar is not a good bet so long as the Chinese central bank continues to monetize U.S. gubmnt debt.

For the short term, I'll side with King.

Tuesday, March 22, 2005

Do Spammers Try to Sell
This Breast Enlargement Product?

I can imagine that spammers would latch onto this product:

A chewing gum which the makers say can help enhance the size, shape and tone of the breasts has proved to be a big hit in Japan. B2Up says its Bust-Up gum, when chewed three or four times a day, can also help improve circulation, reduce stress and fight ageing.

The plant's underground tubers [from which the gum is made] contain a number of chemicals called phytoestrogens - natural compounds which mimic the effects of the female sex hormone oestrogen.

These include miroestrol and deoxymiroestrol, which are believed to exert a particularly strong effect, as they are very close in chemical structure to oestradiol, the main human oestrogen.

B2Up says that it is the effect of these two chemicals, coupled with a third phytooestrogen isoflavone, which makes its gum so effective.
It cites tests carried out by Thailand's Chulalongkorn University which found Pueraria mirifica therapy was able to enhance breast size by 80%.
Further tests carried out in England found that the plant had a beneficial effect on the skin, and hair, as well as the breasts.

[Thanks to JC for this link.]

Feeding Terri Schiavo

No matter what your views about whether the feeding tube should be kept away from Terri Schiavo (and I think reasonable people can disagree, even vehemently on this topic), everyone in the U.S. should be very concerned about the intervention of the U.S. Congress in this debate. As Dahlia Lithwick said Monday in Slate,
The rule of law in this country holds that this is a federalist system—in which private domestic matters are litigated in state, not federal courts.
The federal courts and the federal Congress have no business even trying to intervene in this case. I hope the various courts declare their attempts unconstitutional.

For the record, my wife and I, reasonable people that we are, have strong and divergent views on how long we would like to be kept alive if we are reduced to a vegetative state; as a consequence we have designated individuals, other than each other, to be the decision-makers should the decision ever need to be made. In essence, we are following the advice in this article, which Jack sent me; I urge others to do the same.

Racial Profiling and the
Canadian No-Fly List

From the Trono Globe & Mail, here is yet another example of the sophomoric nonsense engendered by our parliamentary system of gubmnt. The opposition parties expressed concern about racial profiling and about a no-fly list.

MPs from all three opposition parties gathered Monday to call on the federal government to put legislation in place banning racial profiling in Canada.

The politicians say they are concerned that the government is compiling a no-fly traveller list that would worsen the problem.
I understand some concerns about the compilation of a no-fly list -- how does one find out whether one is on the list, how does one address the civil liberties aspect of the list, how does one get one's name off the list, etc.

But the no-fly list has little or nothing to do with racial profiling. Putting "...legislation in place banning racial profiling..." is just plain stupid denial of the probabilities involved with crime and terrorism. Requiring that scarce resources be used to target the stereotypical elderly white female means there will be fewer scarce resources available to look into potential criminals among other groups that are much more likely to commit crimes or acts of terrorism. Not using racial profiling ignores the basic, fundamental economic facts of scarcity and opportunity costs.

Monday, March 21, 2005

Grammar Quiz

Here is a good quiz (link from Cynthia).
It is about grammar.
My scores were: part 1, 100%; part 2, 100%; part 3, 93%; part 4, 75% (where I had "issues" with some of the answers). Or something like that.

It takes about 10 minutes to take the quiz.

Note to all students:
if you do not score at least 60% on each of the first two parts,
please get help!
(or transfer to York, where they'll teach you how to right good)
(or consider majoring in socionomology).

The Federal Funds Rate

On Tuesday, the U.S. Federal Reserve will announce the change, if any, to the federal funds rate. Yesterday, as I was commuting, I heard a radio wonk advise that everybody knows the Fed will raise the rate by 25 basis points (i.e., one-quarter of one percent). Note: If so, when the Fed makes its announcement on Tuesday aftrernoon, the announcement should have no impact on the markets since everybody will already have taken the higher rate into account in their decisions.

Contrast that view with this one from The Wall Street Examiner (this article is in their free section).
We have a split tape, waiting on the Fed meeting.
My take is that the market is either unprepared for a 50 bp rate hike or a more extended period of tightening.
Or, the market is pricing the possibility of a temporary halt or suspension of interest rate hikes.
Not to go out on the limb or anything, but I don't see the Fed tightening, and if it does, it will be unlikely to raise the Federal funds rate by more than 25 basis points. The core inflation rate in the U.S. is low, and the feds will be wary of closing down whatever recovery is underway.

The War on Drugs

The Becker-Posner blog takes on the war on drugs this week, with Becker leading:
After totaling all spending, a study by Kevin Murphy, Steve Cicala, and myself estimates that the war on drugs is costing the US one way or another well over $100 billion per year. These estimates do not include important intangible costs, such as the destructive effects on many inner city neighborhoods, the use of the American military to fight drug lords and farmers in Colombia and other nations, or the corrupting influence of drugs on many governments.

He recommends legalization, combined with a massive excise tax, analogous to the taxes on cigarettes and liquor. They both point out that legalization of drugs would greatly reduce the opportunity costs of law enforcement, freeing up scarce law enforcememt and confinement resources for other uses. As Posner says,
If the resources used to wage the war were reallocated to other social projects, such as reducing violent crime, there would probably be a net social gain.
Back in 1998, Milton Friedman made similar arguments in a NYTimes editorial.

Sunday, March 20, 2005

Is It Time to Short the Euro?

The continued success of the Euro as a world currency depends crucially on the fiscal discipline of each of the constituent gubmnts. If only a couple of the member country gubmnts runs prolonged, serious fiscal deficits, those countries will put inordinate pressure on the Euro and/or threaten to withdraw from the common currency.

The countries will naturally claim that they want the flexibility to address short-run macro weaknesses in their economies. And that is exactly what is happening now.

European finance ministers are meeting in Brussels on Sunday to discuss changes to the Growth and Stability Pact governing the euro.
The agreement limits the size of a nation's budget deficit and has been criticised for not letting governments boost economic growth by spending more.

France and Germany are pushing for greater freedom to break the rules. This is being strongly opposed by smaller member states, such as the Netherlands and Austria.

...France and Germany have bust the 3% deficit limit in every one of the past three years, and along with Italy are calling for greater freedom to increase state spending.

They argue that the rules were put in place when economic growth was stronger and make no allowance for more difficult times.
As economies sputter governments are faced with higher costs relating to payments such as unemployment benefits, as well as pressure from voters to act as a catalyst for growth.

The failure of the European Union to sanction France and Germany for their oversized deficits has led some observers to state that the Pact is effectively dead in the water.
Italian Prime Minister Silvio Berlusconi, facing a bleak economic
picture at home, told business leaders on Saturday that he would put up a "great fight" to get the Pact relaxed.

If France, Germany, and Italy are successful in getting the Pact relaxed, the growing individual country debts will put increasing pressure on the Euro. It might not happen for quite a few years, but the seeds are being sown for the coalition to break down. The Euro is, after all, the result a coalition with no single entity having the power to enforce it. Such coalitions can be unstable over time. As BrianF, who sent this to me, adds,

I think this is what's known in macroeconomic theory as a time-inconsistency, precommitment problem. Which in general parlance means that a committment from a politician is not worth the paper it's written on.

If this trend continues, the Euro will not be a good candidate to replace the U.S. dollar as a world currency reserve; foreign central banks, especially in Asia, will continue to hold U.S. dollars, but only because there is no good alternative, thus staving off the decline in the U.S. dollar that we might otherwise expect.

Three Easy Lessons in Anti-trust Economics

Several months ago, I posted Anti-trust in two easy lessons:

(1) you must compete;
(2) you must not win.

Here are three more lessons to learn about anti-trust economics:

  1. If you charge less than everybody else, it is called unfair competition.
  2. If you charge more than everybody else, it is called price gouging.
  3. If you charge the same as everybody else, it is called collusion.

UPDATE: Tom Luongo adds, "And when you have all three things at the same time it's called a public utility."

How Important Is Journalistic Balance?

I do not subscribe to the notion that there are absolutely true facts. I do subscribe to the idea that we accept as true those things that receive wide confirmation by others.

One result is that despite the efforts of a few people, I believe the holocaust occurred. In fact, I believe that fact with such strong priors that I doubt the sanity and/or credibility of anyone who questions it. Further, my priors are so strong, I see no reason for balanced reporting about the issue anytime the holocaust is mentioned.

So why is C-span any different? Why do they think an interview with an author of a newly published book about the holocaust must somehow be balanced by an interview with a holocaust denier? This is not like a debate on social security reform; it is not even like a debate on the virtues of Salk vs. Sabin polio vaccines, as one of the commenters to the above link pointed out.

Among other examples cited in the above link is this:
In 2002, a British journalist reporting on the rampant incitement to violence in Palestinian media was instructed by his London editor to 'find similar examples of incitement in Israeli media, to give your article balance.' When the correspondent responded that there was no such incitement in Israeli media, the editor killed the story.
Clearly, the desire for balance is not always present. It is usually sought when editors fear reprisals or when they have their own political agendas.
Thanks to BenS for the link.
Who Links Here