EXCERPTS:
"The problem is that the monthly payrolls report contains two different measures – a survey of households and a survey of employers – and in December they pointed in different directions.
The employment survey, the normal focus of attention, showed overall growth in payrolls of only 103,000. That was well below expectations, especially after a disappointing November report and a remarkably high estimate from private- sector payroll processor ADP earlier this week.
Yet the household survey, from which the unemployment rate is calculated, sent a completely different message. It showed an extra 297,000 people in jobs and 260,000 fewer people in the labour force. The combination of the two was enough to cause a drop in the unemployment rate from 9.8 to 9.4 per cent.
...
Most analysts attribute the fall in labour force participation and therefore the fall in the unemployment rate, to the expiry of long-term unemployment benefits in December.
If you no longer receive unemployment benefits, the theory goes, then you no longer have any reason to tell a survey you are actively looking for work. The number of “discouraged workers”, who say that they are no longer looking for a job because they do not think they can find one, was 1.3m in December.
Congress has since renewed long-term unemployment benefits. A likely consequence is that the size of the labour force will bounce back in January, reversing the fall in the unemployment rate.
A further disappointment was in the average duration of a spell of unemployment, which rose from 21.7 to 22.4 weeks, suggesting that those people who are finding jobs have not been out of work for long.
Saturday, January 8, 2011
Wednesday, January 5, 2011
Consumer Protection and the Return of the Loan Shark - WSJ.com
EXCERPTS:
"Regulators cannot wish away the need of low-income consumers for credit: If your car's transmission blows, you need $2,000 for repairs to get to work, whether or not you have it saved in the bank (and most low-income Americans don't). If you can't get a credit card, you're going to have to get that money from a payday lender, pawn shop or loan shark.
In a competitive market, regulation of consumer credit has three predictable types of unintended consequences. First, regulation of some terms of the credit contract will result in the repricing of other terms. Thus restrictions on the ability to raise interest rates in response to a change in a borrower's risk profile lead card issuers to raise interest rates on all cardholders, good and bad risks alike.
But even if card issuers reprice some terms, they may still be unable to price risk efficiently under the new rules. This gives rise to a second type of unintended consequence: product substitution. Card issuers can't price risk, so they issue fewer cards—pushing would-be customers to payday lenders and other nontraditional credit products.
Third, if issuers can't price risk effectively, they will ration lending. In order to make a loan, a lender must be able to price its risk efficiently or to reduce risk exposure by rationing credit. One way to do the latter is to lend less to existing borrowers, which is part of the reason why more than $1 trillion in credit-card lines have been slashed since the onset of the credit crunch.
Banks can also drop riskier borrowers completely. In his letter to shareholders last spring, Jamie Dimon of J.P. Morgan Chase reported that, "In the future, we no longer will be offering credit cards to approximately 15% of the customers to whom we currently offer them. This is mostly because we deem them too risky in light of new regulations restricting our ability to make adjustments over time as the client's risk profile changes." Meet the new payday loan customers.
"Regulators cannot wish away the need of low-income consumers for credit: If your car's transmission blows, you need $2,000 for repairs to get to work, whether or not you have it saved in the bank (and most low-income Americans don't). If you can't get a credit card, you're going to have to get that money from a payday lender, pawn shop or loan shark.
In a competitive market, regulation of consumer credit has three predictable types of unintended consequences. First, regulation of some terms of the credit contract will result in the repricing of other terms. Thus restrictions on the ability to raise interest rates in response to a change in a borrower's risk profile lead card issuers to raise interest rates on all cardholders, good and bad risks alike.
But even if card issuers reprice some terms, they may still be unable to price risk efficiently under the new rules. This gives rise to a second type of unintended consequence: product substitution. Card issuers can't price risk, so they issue fewer cards—pushing would-be customers to payday lenders and other nontraditional credit products.
Third, if issuers can't price risk effectively, they will ration lending. In order to make a loan, a lender must be able to price its risk efficiently or to reduce risk exposure by rationing credit. One way to do the latter is to lend less to existing borrowers, which is part of the reason why more than $1 trillion in credit-card lines have been slashed since the onset of the credit crunch.
Banks can also drop riskier borrowers completely. In his letter to shareholders last spring, Jamie Dimon of J.P. Morgan Chase reported that, "In the future, we no longer will be offering credit cards to approximately 15% of the customers to whom we currently offer them. This is mostly because we deem them too risky in light of new regulations restricting our ability to make adjustments over time as the client's risk profile changes." Meet the new payday loan customers.
What is economics good for?
EXCERPTS:
"So the fact that economists did not foresee the Great Recession with any precision and have failed to model accurately the recovery does not mean that economics or even macroeconomics is worthless. My claim is simply that we should recognize the limits of reason in analyzing complex systems with millions of decision-makers, numerous feedback loops, institutional features (synthetic CDOs, the repo market, the willingness of the Fed to bail out bondholders) that are difficult to model in tandem with the outcomes we care about. Finally, there are important variables that we cannot observe directly such as expectations, anxiety, confidence, overconfidence and so on.
So what is economics good for? It’s good for organizing your thinking. It helps you know where to look for causal elements even if we cannot measure their precise contribution or how to relative weights of factors that pull in opposite directions. Economics helps us understand the relationship between the money supply and a general rise in the price level, between inflationary expectations and nominal interest rates, between expectations of the future and the willingness to invest, between policies that reduce prudence and a rise in imprudent investing. These are all things we understand better than we did 100 years ago partly because we have thought about them a lot, partly because of correlations in the data that we might view as sufficiently close to natural experiments, partly from armchair reasoning and partly from theoretical models of varying degrees of complexity.
We can’t measure any of these relationships with great precision, but we understand something and sometimes a lot about the direction that things are likely to go if something changes but nothing else does. Those are useful but modest gains in understanding. But they do not reach the level of what the media expects economists to be able to explain such as predicting the net impact of NAFTA on the US economy and the well-being of Americans, or how many jobs were created by the stimulus package of 2009. Unfortunately, economists do answer these questions with numerical precision as if they were physical scientists. My argument is that such answers are scientism and intellectually bankrupt.
Perhaps most importantly, economics can often remind us of the full range of effects of a particular policy, what Bastiat called the seen and the unseen. This is very valuable. Is it science? I don’t care. It’s a very powerful way of organizing your thinking about what happens when something changes in a complex system. Economics inevitably makes you aware of unintended or what might better be described as non-obvious consequences of a particular change.
Finally, economics is good for generating humility and preventing hubris. Remember the Hayek quote: "The curious task of economics is to illustrate to men how little they really know about what they imagine they can design."
"So the fact that economists did not foresee the Great Recession with any precision and have failed to model accurately the recovery does not mean that economics or even macroeconomics is worthless. My claim is simply that we should recognize the limits of reason in analyzing complex systems with millions of decision-makers, numerous feedback loops, institutional features (synthetic CDOs, the repo market, the willingness of the Fed to bail out bondholders) that are difficult to model in tandem with the outcomes we care about. Finally, there are important variables that we cannot observe directly such as expectations, anxiety, confidence, overconfidence and so on.
So what is economics good for? It’s good for organizing your thinking. It helps you know where to look for causal elements even if we cannot measure their precise contribution or how to relative weights of factors that pull in opposite directions. Economics helps us understand the relationship between the money supply and a general rise in the price level, between inflationary expectations and nominal interest rates, between expectations of the future and the willingness to invest, between policies that reduce prudence and a rise in imprudent investing. These are all things we understand better than we did 100 years ago partly because we have thought about them a lot, partly because of correlations in the data that we might view as sufficiently close to natural experiments, partly from armchair reasoning and partly from theoretical models of varying degrees of complexity.
We can’t measure any of these relationships with great precision, but we understand something and sometimes a lot about the direction that things are likely to go if something changes but nothing else does. Those are useful but modest gains in understanding. But they do not reach the level of what the media expects economists to be able to explain such as predicting the net impact of NAFTA on the US economy and the well-being of Americans, or how many jobs were created by the stimulus package of 2009. Unfortunately, economists do answer these questions with numerical precision as if they were physical scientists. My argument is that such answers are scientism and intellectually bankrupt.
Perhaps most importantly, economics can often remind us of the full range of effects of a particular policy, what Bastiat called the seen and the unseen. This is very valuable. Is it science? I don’t care. It’s a very powerful way of organizing your thinking about what happens when something changes in a complex system. Economics inevitably makes you aware of unintended or what might better be described as non-obvious consequences of a particular change.
Finally, economics is good for generating humility and preventing hubris. Remember the Hayek quote: "The curious task of economics is to illustrate to men how little they really know about what they imagine they can design."
Tuesday, January 4, 2011
Visitors snap up 100 trillion Zimbabwe bank notes - Yahoo! Finance
EXCERPTS:
"HARARE, Zimbabwe (AP) -- Western visitors to Zimbabwe are looking for zeros. They're snapping up old, defunct Zimbabwe bank notes, most notably the one hundred trillion Zimbabwe dollar bill, as an economic souvenir.
The one hundred trillion Zimbabwe dollar bill, which at 100 followed by 12 zeros is the highest denomination, now sells for $5, depending on its condition. That bill and others -- among them millions, billions and trillions, were abandoned nearly two years ago, when the American dollar became legal tender in the hopes of killing off the record inflation that caused all those zeros.
...
At the height of Zimbabwe's economic meltdown in 2008 when Zimbabwe's world record inflation was running into the billions in percent annually and prices were climbing each hour, the 100 trillion bill scarcely bought a cart of groceries.
Teachers reported the printing of bank notes from millions to billions and then trillions skewed their pupils' sense of numeracy, making them fail to grasp the realities of numbers.
On one geography field trip, students scoffed at being told granite rocks swept over Zimbabwe by ancient glaciers were 700 million years old. That time frame seemed insignificant.
Back then in 2008, 700 million Zimbabwe dollars bought a loaf of bread.
Scientists and physicists estimate the number of atoms in the universe at 10 to the power of 80 -- 10 followed by 80 zeros.
During the worst of Zimbabwe's economic meltdown and hyperinflation, Zimbabwe's highest money denominations were logged at 10 to the power of 25 -- 10 followed by 25 zeros.
The central bank then sliced off several zeros, but large transactions were still calculated in quadrillions (15 zeros) and quintillions (18 zeros) until the demise of the local currency.
"HARARE, Zimbabwe (AP) -- Western visitors to Zimbabwe are looking for zeros. They're snapping up old, defunct Zimbabwe bank notes, most notably the one hundred trillion Zimbabwe dollar bill, as an economic souvenir.
The one hundred trillion Zimbabwe dollar bill, which at 100 followed by 12 zeros is the highest denomination, now sells for $5, depending on its condition. That bill and others -- among them millions, billions and trillions, were abandoned nearly two years ago, when the American dollar became legal tender in the hopes of killing off the record inflation that caused all those zeros.
...
At the height of Zimbabwe's economic meltdown in 2008 when Zimbabwe's world record inflation was running into the billions in percent annually and prices were climbing each hour, the 100 trillion bill scarcely bought a cart of groceries.
Teachers reported the printing of bank notes from millions to billions and then trillions skewed their pupils' sense of numeracy, making them fail to grasp the realities of numbers.
On one geography field trip, students scoffed at being told granite rocks swept over Zimbabwe by ancient glaciers were 700 million years old. That time frame seemed insignificant.
Back then in 2008, 700 million Zimbabwe dollars bought a loaf of bread.
Scientists and physicists estimate the number of atoms in the universe at 10 to the power of 80 -- 10 followed by 80 zeros.
During the worst of Zimbabwe's economic meltdown and hyperinflation, Zimbabwe's highest money denominations were logged at 10 to the power of 25 -- 10 followed by 25 zeros.
The central bank then sliced off several zeros, but large transactions were still calculated in quadrillions (15 zeros) and quintillions (18 zeros) until the demise of the local currency.
Saturday, January 1, 2011
instructions - ignore this
You are receiving this message because you have agreed to proctor an economics exam for a student in an online course offered by Northwestern State University. I would like to thank you for playing a vital role in this NSU course. By serving as a proctor you are providing an environment which protects students from the temptation to cheat. In this way you are helping the NSU faculty to uphold the academic standards which apply to all of our courses.
WHAT IS NEEDED. The exam will be taken online. The student will need a computer with an internet connection. The computer will need to have the Respondus Lockdown browser installed on it. (If the Lockdown browser needs to be installed on the computer it can be downloaded from http://www.respondus.com/lockdown/information.pl?ID=722313312. Installation takes only a few minutes but does require administrative rights to the computer and should be done before the day of the exam. The student can use their own computer or one that belongs to your institution.
To access the exam a password is required. The password for this exam is ___. Give this password to the student once they are ready to begin the exam. (They can take the exam only once so they should not log on until they are ready to begin.)
DATE: The exam can be taken anytime between 7:30 AM this coming Monday (March 21st), and 9:00 PM Wednesday (March 23rd).
WHEN THE STUDENT ARRIVES FOR THE EXAM. Although you may have known this student prior to this course you should look at their photo ID and verify that the person taking the exam is in fact the person who is registered for the course. Please copy the name on the student's ID onto a piece of paper, then include that name on the subject line of the email you send me once they have finished the exam.
Please remove all books, notes, and cell phones from the area where the student will be sitting. They are allowed to have two or three totally blank pieces of paper, a pencil or pen, and a calculator.
The student will access the exam by clicking the Respondus Lockdown icon on the desktop of the computer. The browser will ask you to select which server to use. Of the three options listed, choose “Moodle.” The browser will open on the NSU Moodle site. The student will enter their username and password, then go to the Econ 2000 page. In the middle column, below the picture of Adam Smith, and above “Welcome to Economics,” they will find “EXAM ONE.” Students are allowed up to 90 minutes for the exam but most students will finish in less than an hour.
DURING THE EXAM. Each student is to work alone under your supervision during the entire testing period. No “split” or “continued” testing sessions are allowed. Once the exam begins the student is to work in an uninterrupted manner until they have completed the exam.
When the student is ready to stop they must click “submit all and finish” at the bottom of the page. The exam cannot be graded if it is not submitted. Once the exam has been submitted the student should log off and close the Respondus browser.
If at any time you believe the testing procedure has been compromised you should terminate the exam and contact me as soon as possible.
AFTER THE EXAM. As soon as the student finishes the exam please send me an email confirming that the student did complete the exam in the specified manner. On the subject line of the email put the student's name as it appears on their ID.
Again, thank you for serving as a proctor for this exam.
On truth's side
This article is a pretty good summary of much of what I hope you will learn in this course.
Political End Runs
EXCERPTS:
"Professor Roscoe Pound likewise referred to the need for "a living constitution by judicial interpretation," in order to "respond to the vital needs of present-day life." He rejected the idea of law as "a body of rules."
But if law is not a body of rules, what is it? A set of arbitrary fiats by judges, imposing their own vision of "the needs of the times"? Or a set of arbitrary regulations stealthily emerging from within the bowels of a bureaucracy?
Louis Brandeis was another leader of this Progressive era chorus of demands for moving beyond law as rules. He cited "newly arisen social needs" and "a shifting of our longing from legal justice to social justice."
In other words, judges were encouraged to do an end run around rules, such as those set forth in the Constitution, and around the elected representatives of "we the people." As Roscoe Pound put it, law should be "in the hands of a progressive and enlightened caste whose conceptions are in advance of the public."
That is still the vision of the left a hundred years later. The Constitution cannot protect us unless we protect the Constitution, by voting out those who promote end runs around it.
"Professor Roscoe Pound likewise referred to the need for "a living constitution by judicial interpretation," in order to "respond to the vital needs of present-day life." He rejected the idea of law as "a body of rules."
But if law is not a body of rules, what is it? A set of arbitrary fiats by judges, imposing their own vision of "the needs of the times"? Or a set of arbitrary regulations stealthily emerging from within the bowels of a bureaucracy?
Louis Brandeis was another leader of this Progressive era chorus of demands for moving beyond law as rules. He cited "newly arisen social needs" and "a shifting of our longing from legal justice to social justice."
In other words, judges were encouraged to do an end run around rules, such as those set forth in the Constitution, and around the elected representatives of "we the people." As Roscoe Pound put it, law should be "in the hands of a progressive and enlightened caste whose conceptions are in advance of the public."
That is still the vision of the left a hundred years later. The Constitution cannot protect us unless we protect the Constitution, by voting out those who promote end runs around it.
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