One of the last economists of an era. The profession is richer today because of his contributions.
September 2004 Archives
It's not every day that your hometown is featured in a Federal Reserve publication. Read about the influx of new immigrants into Pelican Rapids, MN and a number of other 9th district towns and cities.
The FOMC voted to raise the fed funds target by 25 basis points. No surprise, of course, but the real news might be in the statement accompanying the decision.
They write: "Despite the rise in energy prices, inflation and inflation expectations have eased in recent months."
Translation: If there are no further signs of inflation picking up, this trend of a rate increase at every meeting need not continue. Maybe we'll hold steady on November 10.
They continue: "With underlying inflation expected to be relatively low, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability."
Translation: Don't count on us holding steady on November 10.
Let's be clear. They still want to keep rates moving up, probably to between 3 and 4% in the next year or so, but they don't have any strict timetable for it. They will pause once or twice when it seems like the right thing to do. Whether November 10 is that time or not depends on employment reports, GDP reports, and other economic news between now and then. Right now, I'd put about 50 to 60% certainty on another increase at that time. That's enough uncertainty to make me want to watch the numbers very closely.
People often ask what this will do to mortgage rates. This time, probably not much. If this move is seen as holding the line on inflation, I wouldn't expect a sudden jump in mortgage rates. They might even temporarily fall as they did over the latter half of the summer. (I correctly called this one back in June for a local TV newscast. Unfortunately the entire story script is not on-line.) I do think, however, that a steady upward drift in mortgage rates is in the cards for 2005, maybe to around 7% by next year's end.
But that's if nothing else changes between now and then.
Time for a little thinking out loud.
The "blogosphere" is a network, as the previous entry points out. Networks have been the subject of considerable study in economics especially since the arrival of the modern Internet. One lesson stands out: the value of a network grows more quickly than the size of the network.
This idea has often been expressed as Metcalfe's Law, which states that the value of a network is equal to the square of the number of users. As a rule of thumb, that's fine, and it certainly is easy to remember, but in reality it might be far more or less than that. Metcalfe's Law is based on the observation that the number of 2 way conversations in a network is equal to N(N-1). That is, if you have N telephones in the network, each of those N telephone users, can call one of the other (N-1) users. Hence, there are N(N-1) 2 way conversations that are possible.
This "Law" says nothing, however, about the social value that is created by these connections. If you have a phone that you use only for emergencies, it doesn't add as much social value to the system as a phone that is used frequently to connect you with many friends and business contacts.
So what is the value of the "blogosphere"? There are about 4 million blogs listed on Technorati. Thousands have only a handful of readers, while a handful of blogs have thousands of readers. This isn't a standard telephone. Popular blogs are like a 50,000 Watt radio station, capable of selling advertising, and maybe even able to compete with traditional media. Most are probably less significant than the bulletin board over the company water cooler.
Figuring out the value of the blogosphere is not a trivial problem that can be reduced to Metcalfe's Law.
But as events of the last few days illustrate, there is something new going on. Bloggers became part of the story about the CBS documents. Some might say that it's premature to call this a "revolution", but clearly Joe Trippi doesn't think so.
Think about this: you can go to a news aggregator and subscribe to all your favorite newspapers and blogs. Then, every morning, you listen to the largest conversation in the world -- a party line for the ages-- filtered to give you just the keywords you want, and you have a voice in that conversation.
What is the value of that?
To be continued...
Alan Bjerga references your humble scribbler today. Thanks Alan!
He also references this article from CNET news that I found interesting as a new blogger. Apparently blogs are taking up a lot of bandwidth on the 'net. As a blogging neophyte, I was momentarily confused. Surely, all these blogs can't be generating that much traffic, can they?
Reading on, I got the point. It's all these RSS feeds are the problem. All day long, these feeds are supplying "news aggregators" with blog entries and news articles from all over cyberspace. You log on to one of these aggregators and you can get all of the news to which you subscribe all in one place. It's as if you could subscribe to a bunch of newspapers, have the headlines all combined onto one sheet of paper in your mailbox every day, and you can scan all the headlines reading just the ones that you want. Cool, huh? Yes, very. But when a lot of people do it, it generates a lot of 'net traffic.
So the article is interesting, but I'm not panicking. The blog phenomenon is still pretty new. The technology for managing the RSS feeds is pretty rudimentary. Reading the article and knowing little else about RSS, I gather that the RSS protocol was designed without any regard to bandwidth constraints. (RSS actually stands for "really simple syndication".) Who would have thought that blogging would take off in such a big way? I think it is safe to predict that they'll develop a new protocol that uses the scarce resource more efficiently.
But if this blog phenomenon gets any bigger, they might want to hurry it up!
There was some interesting presidential polling data in the news from yesterday. CNN reports that Bush's lead in the Gallup Poll increased to 13 percent (8 percent among registered voters). Meanwhile a poll by the Pew Research Center shows the president's lead going from double digits to no statistically significant lead at all.
When the polls disagree, I always refer back to the Iowa Electronic Market, which has a pretty good record at predicting the popular vote over the years. The IEM is showing roughly a 51 to 49 lead for Bush at the time of this writing. This graph shows how sentiment has changed over the last few months. The popular vote, at any rate, looks too close to call. But as the elections of 2000 and 1888 remind us, it is the electoral vote that counts. Tim Russert said it best in 2000 when he wrote "Florida, Florida, Florida" on his whiteboard before anyone knew how prophetic he would turn out to be.
So is it going to be Florida again? I'm not ready to say yet whether Florida will decide the election, but it, like Missouri, is almost certain to be a bellwether state. A close call in Florida will mean a long night on November 2nd whether they cast the deciding electoral vote or not.
Couldn't resist putting up this picture from a 2002 family vacation. This is me at Yellowstone National Park in front of the "Economic Geyser". It doesn't erupt often, but it is named for the economical way that water drains back in to the geyser after an eruption.
Technorati reports that about 15,000 blogs are created every day. That's about one every 5.8 seconds.
The Federal Open Market Committee meets Tuesday on whether or not to raise (lowering is pretty much out of the question) the fed funds target. Smart money is on a 25 basis point increase. Holding steady at this point might be taken by the market as a negative signal. The Fed is often accused of juicing the economy before an election, but ironically, this time a more accommodative policy probably wouldn't have the desired effect. Expectations matter a lot these days. Alan Greenspan has been instrumental in making the Fed more transparent, and it has made the market a lot better at predicting the Fed's actions. On balance, that's a good thing, but it does add a constraint to their decision making process. Leaving rates alone would raise a lot of questions in the market.
The question is, where do rates go after Tuesday? Consumer confidence is slipping. Clearly the Fed would like to get rates up to a more appropriate level over the next year, but they won't want to risk slowing things down too much too fast. Right now, I would expect that the meeting after next might give us pause in the action. But even so, I don't see any reason why they won't stay the course towards a fed funds rate of 3 to 4% in the next 12 to 18 months. Look in the press release for indications of where they might be going on November 10.
And by that next meeting we'll know who the next president will be.
We hope.
Barry Bonds joins Hank Aaron and Babe Ruth in the baseball stratosphere. As this article shows, he did it in fewer at-bats than Aaron, but more than Ruth. He did, however, take a lot more walks than either one, and that includes a record 105 intentional free passes. Frustrating as it must be to get so many walks, I wouldn't want to pitch to him!
If you're looking for good blogging on the election, roll your mouse on over to Alan Bjerga's site. He and I went to college together back in the early 90s. These days he is writing for the Wichita Eagle as a Washington correspondent. Intelligent and well connected, his blog is a good read.
Oh no, not another blog! Well, here comes another. It's something I've been thinking about doing for some time but just never got around to it. So what is this blog about? It'll be about economics, and maybe other things as I feel like it. Nice thing about a blog. It is about what you feel like writing. So here goes!
I'm an economics professor at Bradley University in Peoria, IL. That would explain the tilt that this blog will have toward things economic in nature. The title of my blog makes reference to a famous quote by a famous economist.
So, all you out there in the blogosphere, what's the quote and who said it?
