Tuesday, April 26, 2011

Mazi's Link O' the Day

This link is a tad too conservative, but it does give an interesting explanation of Obama's tax cutting plans:


Wednesday, April 20, 2011

Mazi's Link O' the Day

Here is the video on central bank independence completed by my peers and I:


Sunday, April 17, 2011

Magic Money Machine

Alright, so I and some of my esteemed colleagues here at Vassar College have put together a little video for the St. Louis Fed's competition. Every year, they challenge teams to put together a 5 minute film answering some economic question at a level understandable by high-schoolers. This year's query: Why should the central bank (i.e.- Fed) be independent (i.e.- not answerable to the executive branch of government)? Seems like a good topic for an EconStu post, as well.

Here's the reason we covered in our video and though there are countless arguments to be made, this is, in my opinion, the most convincing. Fed non-independence leads to political business cycles. Let's say it's election season (oh boy!!!!), and the incumbent president really needs a boost. Without central bank independence, he can march over to the Fed and say, "Pump out some more money!" What does this do? Well, just as you might imagine, there's simply more money. Expected inflation goes up, and people's wages adjust. However, for those of you who have taken intermediate macroeconomics, you know that prices are "sticky," as in they don't change instantaneously. So, for a little while at least, everybody feels richer, buys more, and is generally peachy. Come voting day, Mr. Incumbent begins planning for his next 4 years in office. Then, slowly, producers and retailers see demand for their goods rising, and they say, "Hmmm, I think I could raise prices." And they do, and now no one feels richer anymore. In fact, in relative terms, $1 is worth less than it was before. Oh the pains of inflation.

But with central bank independence, when that prez picks up the phone and calls up the Fed, Mr. Chairman can say, "I don't have to listen to YOU!"

Wednesday, April 13, 2011

Mazi's Link O' the Day

I haven't posted one of these links in a while. Here's a roundup of some economic news. The middle paragraph is especially interesting to me:


Tuesday, April 12, 2011

"Cow Politics" Macro Lessons from the Farm

A little bit outdated but definitely something that is still pressing in the world political economy, and especially for the U.S. Besides, who doesn't love cows?

The editorial goes after the big developed countries and their enormous subsidies they shell out in order to protect their farmers and agricultural industries in general. After all, most developed countries with large chunks of net exports and GDP after all stemming from such business (think the midwest and corn) are looking to keep things the way they are especially as the global economy rebounds from crisis.

In a nutshell these big countries (i.e. Japan, U.S., and the bigger members of the EU) all meet at yearly summits within the W.T.O. in order to discuss both domestic and global issues of trade. Agricultural subsidies in particular, like those to cow farmers, take up large chunks of these government's expenditures and as the article states "Some experts say the developed world could lift 140 million people out of that mire of poverty if it really reformed the way it managed agricultural trade".

Discussions like this one way back in 2005 still go today like i mentioned. But the fact of the matter is, within any of these governments there is room to reduce spending whether it be on subsidies or healthcare bills. Beyond the issues of where or when to reform lay those of how does the creation of wealth from cutting costs get to the hungry third world countries? Moo.

Mazi's Link O' the Day

Some notes and graphs about taxation in the OECD:


Monday, April 11, 2011

Sunday, April 10, 2011

When Inflation Could Be Good

Paul Krugman has written recently on the large divergence in labor costs in Europe. Notably, many of the struggling southern European countries have experienced surges in labor costs above the 2% inflation target of the European Central Bank, whereas countries like Germany have experienced the opposite. The ECB is now encouraging the southern countries to "get with the program" and start a deflationary cycle.

Well, that seems a tad unfair, so to speak. As Krugman points out, "During the eurobubble years, there were huge capital flows to peripheral economies, leading to a sharp rise in their costs relative to Germany." Why was there a surge? In the simplest explanation, it can be attributed to the adoption of the euro. A common currency significantly reduces transaction costs. Also, investment abroad (in a non-common currency) requires converting to the local country's currency. If the investors have fears about the volatility of the exchange rate (which is likely in a developing or emerging economy), they might shy away from putting their money down. Naturally, it follows that the adoption of the euro alleviated many of these worries.

So while the rise in labor costs can be attributed to foreign inflows, what's wrong with asking the countries to deflate? Well, why not ask, say Germany, to inflate (although that's easier said than done, I realize)? This a two-birds-with-one-stone solution. Incredibly low headline inflation has been a post-crisis worry, and for once, inducing inflation will not only help the country in question, but also many of its neighbors struggling with different problems.

Saturday, April 9, 2011

Mazi's Link O' the Day

TED, once again providing us with something completely unrelated to finance:


Thursday, April 7, 2011

Mazi's Link O' the Day

Cool post comparing the 2001 to the 2008 recessions. Namely, it looks at the surprisingly larger drop in real wages in the former one:


Wednesday, April 6, 2011

Get Your Facts Straight

Every once in a while the Cato Institute issues these 5-10 minute videos on some economic problem plaguing the nation. Recently, I watched a not-so-coyly conservative video about public sector pay versus private sector pay.

A couple of decent points are made. Mainly, and I wrote this earlier on EconStu, California is handing out enormous pension payments (read: six figures), and that is not helping that state's finances.

Here's the big issue though. The claim that the mean wage for public sector employees is higher than that of private sector ones is meaningless. Math example!!!!

We have a mini-country, Microworld. In Microworld there are precisely 3 public sector employees, Al, Bob, and Jane. Al has a PHD. Bob and Jane have bachelors degrees. In the private sector, there are also 3 employees, Will, Emma, and Tanya. Here are their wages:

Public Sector:
Al- 200,000
Bob- 50,000
Jane- 50,000

Private Sector:
Will- 60,000
Emma- 60,000
Tanya- 60,000

Mean public sector wage= $100,000
Mean private sector wage: $60,000

So, the idea that a mean tells you any reliable information in this scenario does not hold up. It turns out that once you control for education, you'll find that public sector employees are actually underpaid. Go figure.

Mazi's Link O' the Day

Arguments against Rep. Paul Ryan's "Path to Prosperity" budget balancing plan:


Monday, April 4, 2011

Mazi's Link O' the Day

TED discusses the proper way to go about setting financial regulations:


Saturday, April 2, 2011

Mazi's Link O' the Day

Many people on the right of the political spectrum have cited 1921 as an example of how to respond to the problems of 2008-. Paul Krugman explains why this is a bad analogy: