June 2005 Archives

Via the NY Times:

One school of thought holds that low bond yields are a harbinger of slowing economic growth, which would reduce demand for credit in the future. Another school holds that global investors have lower inflation expectations than in the past, which reduces the risk of holding long-term bonds. If either theory is correct, the Federal Reserve would have less need to fend off inflation and could stop raising short-term rates at a much lower level than in the past - perhaps below 4 percent.

But yet another theory holds that long-term interest rates may have been depressed by other factors, including a "savings glut" around the world and efforts by Asian central banks to keep the value of their currencies down by buying United States Treasury securities.

If that is true, the flood of foreign money into the country could be diluting the Fed's effort to prevent inflation. That would imply that the Fed needs to raise rates more than many investors are expecting.

...

Wall Street economists are as divided as Fed officials about the proper interpretation.

James Glassman, a senior economist at J.P. Morgan, contends that long-term interest rates reflect the deflationary effects of globalization. "If you think of this in economic terms, East Asia and Nafta have been annexed to the United States. It looks like an economy that has far more excess capacity. Overnight, decisions by the Chinese government are releasing huge numbers of Chinese laborers. That means more excess capacity and a longer time to get back to full employment."

What does this mean for this week's FOMC meeting? The bond market will probably be parsing the words in the statement pretty carefully. Guessing what the wording will be ahead of time is a tough game to play, and I'm not going to do that this time. Back in March it seemed like the market sort of got its signals crossed. Hopefully the statement will be clear enough so that won't happen again. Of course the statements have changed incrementally over the last year, so any sudden change would raise eyebrows. That's the downside of transparency.

Small price to pay.

Oh, and I think "measured pace" stays.

See also Tim Duy's Fed watch at Economist's View.

Blogging hiatus begins today. I'll be back in a few days, hopefully around the weekend. Enjoy the rest of the week.

DNS propagation continues, and more of you should be pointing at the new server. I would think that the transition should be complete sometime tomorrow. Oddly, my ISP still directs me to the old server. However, I have pinged the site from another account and it comes up to the new server. Go figure.

If you are reading this on a feed reader, the link back to the site will not work unless the DNS at your ISP is pointing to the new site. You might get a "not found" or a different entry than the one you wanted. Just wanted to let you know this in case it happens. This effect will go away once your name server updates.

If you're reading this directly off the site, there is nothing that you need to do. The fact that you're here is proof that it worked. The really important thing is that the permalinks, comments, and trackbacks are all preserved. So any links back to me using the permalink will function seamlessly. The site's URL is the same.

One more post before leaving for a few days...

Things look pretty good on the new server. There are some things that are improvements for me that you won't notice. For you, it should mostly be the same (unless you can tell that I upgraded to version 3.17 of Movable Type).

You might have found a "site unavailable message" for a while today while the DNS servers were updating. Also, there was one other issue that is now resolved (or should be soon).

In order for me to see and work on the site before the DNS change was complete, I had to mirror the site. Some RSS feeds got out with the mirror as the address. That's been taken care of. The mirror will go away after a while, so if you saw it, just ignore it. The URL of this site has not changed!

Permalinks and links to comments and trackbacks on the posts since the move to the new server may fail if you get here from the mirror site before the DNS change propagates all the way through the internet. That should resolve itself in a matter of hours and all systems will be "Go."

The process of moving the rest of my material possessions to our new home begins tomorrow. I'll probably be checking that the blog is working ok on the new server and maybe make one more post tomorrow. After that, I'll be taking a break from blogging for a few days. I expect the hiatus to be less than a week.

The only thing bad about that is that I'll probably be busy when the Fed meets this week. However, I think we all know what the result of that meeting will be. If anything interesting is in the press release or in the commentary about it, I'll chime in with my 2 cents towards the weekend.

I did, and that allows me to proudly say...

The results page was down due to heavy traffic. I'll have to check it later.

I have moved the blog to a new server, but the URL remains the same. Updated Movable Type at the same time. The change should be pretty much transparent for you, the reader.

With apologies to Brad DeLong, I think this deserves a "Why, oh why..." sort of intro.

Here's the Washington Post article about DeMint's proposal for private accounts. They catch on to the flaw.

Key Republican lawmakers, scrambling to keep President Bush's Social Security proposals afloat, plan next week to embrace an idea that many have avoided thus far: funding personal retirement accounts with surplus revenue that now pays for other government programs.

There's a reason they avoided it. It's a bad idea.

The strategy is controversial because it would create new budget problems. Either the diverted money would have to be replaced with new taxes, or Congress would have to slash programs now funded by Social Security's excess payroll taxes.

and...

Aides close to Graham, Santorum and DeMint said their proposal will not preclude broader initiatives, including several that have been floating for months. "It is not a comprehensive reform," one aide said. "It is sort of a first step toward gaining momentum." A Graham aide said the senator still thinks Congress must trim benefits and raise taxes to safeguard Social Security's future.

Another GOP staffer familiar with Tuesday's scheduled event said the participants will acknowledge that redirecting surplus Social Security funds will create budget problems elsewhere.

"No one is going to find a magic bullet," the staffer said. "There's going to be real pain at some point."

Among other things, the proposal would be horribly confusing to implement. Are they proposing to divide up whatever the Social Security surplus turns out to be in a given year among millions of private accounts for people? And these accounts just hold government bonds? The surplus is set to shrink, you know. So over time, the additions to the private accounts shrinks? At least Al Gore's proposal was more practical. This one just seems odd to me. The only thing I can possibly come up with is that they figure that they will add-on or carve-out more contributions for the private accounts later. But if that isn't spelled out at the beginning, it could lead to trouble down the road. Do you raise payroll taxes down the road to pay for low income taxes today?

If they want a "lockbox" as a commitment mechanism, that's one thing. But the addition of private accounts would be needlessly costly added to a plan like this. It doesn't make any sense. There are better ways. It seems like they are trying to blend Gore's lockbox with a minimal sort of private account. The result would be more costly and confusing than either Gore's lockbox or a straight-up diversion of some percentage of the payroll tax to private accounts.

I like the principle of private accounts--I really do. But when something like this comes out of left field ("right" field?), it seems to indicate that there is not a well thought out strategy here. DeMint has this plan, Bennett has another, there are already House and Senate bills (imperfect as they are) languishing in limbo.

Socialsecuritychoice.org is already spinning this as free lunch. They don't use those words, but they also don't acknowledge the costs. Not acknowledging the costs constitutes "spin" from my point of view.

Mark Thoma is disgusted with it too, as is PGL (Angry Bear). Thoma goes to great lengths to smack it down, which is really unnecessary. "No free lunch" says it all. The rest is commentary.

UPDATE: It's worse than I thought. (h/t Mark Thoma)

Probably. Today's NY Times editorializes thusly:

Rather than accept defeat and consider alternatives, Mr. Bush is becoming even more feckless as public and political opposition mounts. On Tuesday, in a lame ploy to draw the Democrats to the table, he gave tepid approval to a proposal by Robert Bennett, the stalwart conservative senator from Utah, to restore the system's solvency in a way that would not include private accounts - all the while saying that he was not prepared to give up private accounts.

Let me interject to say that I too thought that the "tepid approval" of Bennett's plan together with the continued push for private accounts was weird to say the least. I wonder what Mr. Bennett makes of it.

Mr. Bennett's plan includes drastic and unnecessarily large cuts in Social Security benefits, but at least he is being straightforward in offering a plan that addresses the real problem Americans want solved. A group of four Republican representatives have meanwhile offered a proposal that would, in effect, abandon efforts to restore solvency in order to resuscitate those doomed, unwanted, unwise private accounts.

Enough is enough. Mr. Bush must either put forth a complete plan - including details of the risks, benefit cuts and borrowing costs that privatization would entail - or abandon his quest. Anything other than that is wasting his own and, by extension, the American people's time.

It's getting harder and harder for me to imagine a world in which private accounts become part of Social Security before the end of this presidential term of office. If you've been following the blog for a while, you know that I've been supportive of the general idea of private accounts (see here, for example) but not at all bashful about criticizing various proposals that have been floated (see here and here, for example). As the discussion evolved, I came to see Social Security as a very good income insurance program and a lousy retirement investment. The real questions are how much income insurance is optimal and how progressive it should be. I became frustrated with the notion of "rate of return" as applied to Social Security (see the comments to this post). To the extent that Social Security is insurance, the term "rate of return" is awkward to say the least. Because Social Security is partly (mostly?) insurance, any calculated rate of return to the average participant is sure to be dominated by the return to TIPS--probably even dominated by the return on passbook savings accounts. So many people would be better off with private accounts, but if that comes at the expense of the social insurance, it's not an unambigously good thing.

All the while, President Bush kept talking about IOUs and file cabinets. In fact, he did it again on Wednesday. Ugh. It's like the movie Groundhog Day. Same thing over and over again. Even for a supporter of private accounts it's getting old.

And it's not working. Republicans are distancing themselves from private accounts (e.g. Bennett). The polls don't look good for private accounts. Midterm elections will be coming up quickly before anything can get passed. Even Andrew Samwick is losing hope. After testifying before Congress, he notes,

It is not clear that we accomplished much through this hearing. I got no indication from the Representatives that they would be looking to get a bipartisan bill through their Committee. I hope that I'm wrong.

I'm afraid he's probably right.

A few years ago (2001 to be exact), I put the number 2008 on the whiteboard in my office. When people asked about it, I said that's the next time that Social Security reform will be seriously debated. At the start of this year, I feared that I would turn out to be wrong. Well, I was wrong if you're talking about the blogosphere, but if we're talking about any serious chance of anything really happening in the halls of congress I still have a chance. It will only happen if a Democratic candidate engages by endorsing something like Brad DeLong's idea, (not Al Gore's "lockbox").

Not that I would mind having either or both candidates in 2008 touting some version of a plan to increase national (and personal) savings. I think private accounts, if done right, would work. But it is nearly impossible to imagine a world in which politicians could come together to do it right. The last 6 months have been very discouraging in that regard. Doing it right means phasing in private accounts (and the carve-outs) very slowly with younger workers. Since younger workers don't vote in large numbers, what appears to me to be the sensible way to do it economically ends up being political suicide.

It is with much disappointment that I say this. I have lost hope that a Social Security reform plan that is anything close to optimal will be politically acceptable, and I won't throw my support behind plans that are flawed. If that means no private accounts because the demographic who would benefit from them doesn't vote, then so be it. It's a miserable conclusion if there ever was one, but I fear it is so. Time to look for a second best solution for 2008. Enterprising Republicans and Democrats seeking the White House should get to work on it now.

Thoma read Samuelson's lastest Washington Post piece and didn't like what he saw.

Samuelson first:

… Economics textbooks once described the U.S. economy as mainly self-contained. ... Globalization has shattered this model. More industries face foreign competition or depend on foreign markets. ... Savings and investment have also gone global. … All this alters the U.S. economy. One theory of low American interest rates is that foreign money flows have pushed rates down...

Thoma responds:

I hate to be the one to break it to him, but we’ve been adding terms like net exports to our models for a long time. Even principles books now routinely cover this, something that wasn’t true twenty or more years ago. I'd guess that's somewhere around the age of the textbook he references when he writes his columns. If I thought it would help, I'd send him a new one.

Well, this does raise some interesting issues. First of all, Mark is absolutely right about the state of the textbooks twenty or more years ago. That situation is improving slowly, but it is still far from perfect. It takes a lot more than adding a term for net exports. Some such treatments were/are pretty ad hoc.

Of course, many journalists took macroeconomics more than twenty years ago and thus have little or no formal training in the macroeconomic view of globalization. The good ones have learned from experience on-the-job through the last couple decades watching and reporting on globalization as it happened. Alas, many writers are still living in earlier, simpler times.

Anyone who has taken economics in the last twenty years or so should have seen some international economics, but it hasn't all been fully integrated into the curriculum. For example, ten years ago you might have seen something about exchange rates shifting the aggregate demand curve (don't have the book with me at the moment, but I think I'm remembering correctly). Maybe if you were lucky, your professor told a story about recent currency devaluations and their effect on the domestic economy, but that would be more likely at the intermediate level, not principles. That's better than nothing, but I think if Robert Samuelson looked at one of those books, he'd probably want to toss it out as being less than helpful at really understanding modern international economics.

So what about the state of the art? It's certainly better. One thing that is starting to creep in even at the principles level is a discussion of interest rate and inflation differentials across countries. That's reasonably sophisticated, but you can do it at the principles level if you keep it intuitive and tell lots of good stories (B-school types call them "case studies" which is much more dignified). But I haven't found the sweet spot yet.

At higher levels (I've been prepping for my master's level course lately), things are much better. There really is no excuse for not doing open economy macro at that level in the current environment. But how many business writers have advanced degrees in economics? How many of them received those degrees in the last 10 years (when a lot of good research started to work its way in to the curriculum)?

But the fact remains that many of the points raised by Samuelson are beyond what is in the principles of economics textbooks. I mean, how many principles texts cover home bias, yield curves, and foreign central bank portfolios? Sounds like that's what he's looking for, and that's a lot more than Y=C+I+G+NX.

So Thoma and Samuelson both make some points. I'll add one more to the mix. Until principles texts really do incorporate some international finance into the discussion in a serious way, perhaps economics departments should push international economics courses for business students as an essential part of their preparation for the real world. Even a well-taught principles course is probably not enough.

Via Marginal Revolution, comes this article from Virginia Postrel. She spends much of the article smacking down the views of Barry Schwartz. If that name is familiar, it might be because that's the same Barry Schwartz who debates Russ Roberts in the NPR interview I linked to here. But Schwartz isn't the only one who thinks we have too much choice.

A sampling from the article:

It’s all too much, declares the latest line of social criticism. Americans are facing a crisis of choice. We’re increasingly unhappy, riddled with anxiety and regret, because we have so much freedom to decide what to do with our money and our lives. Some choice may be good, but we’ve gone over the limit. The result is The Loss of Happiness in Market Democracies, the title of Yale political scientist Robert Lane’s 2000 book on the subject.

To these critics, providing too many choices is the latest way liberal societies in general, and markets in particular, make people miserable. “Choices proliferate beyond our pleasure in choosing and our capacity to handle the choices,” writes Lane. Like cheap food and sedentary labor, the argument goes, abundant choice is not something human beings are biologically evolved to cope with. We’d be better off with fewer decisions to make.

“As the number of choices keeps growing, negative aspects of having a multitude of options begin to appear,” writes Swarthmore psychologist Barry Schwartz in The Paradox of Choice, published in January 2004. “As the number of choices grows further, the negatives escalate until we become overloaded. At this point, choice no longer liberates, but debilitates. It might even be said to tyrannize.”

Schwartz’s book has become a touchstone, not just for social critics but for self-help gurus and marketing professionals looking for the Next Big Thing. Its argument also offers a scientific-seeming alternative to public policies that expand choice, notably in health care and retirement accounts.

And...

“Consumers tend to return to the products they usually buy, not even noticing 75% of the items competing for their attention and their dollars,” writes Schwartz. “Who but a professor doing research would even stop to consider that there are almost 300 different cookie options to choose among?”

And who but a polemicist pursuing an argument would completely ignore what these habits tell us about the world? In a familiar environment, people aren’t overwhelmed by choice. With experience, we learn to negotiate the alternatives. Schwartz may have trouble in The Gap, but a teenager who owns nine pairs of jeans doesn’t. As Schwartz himself notes, “A small-town resident who visits Manhattan is overwhelmed by all that is going on. A New Yorker, thoroughly adapted to the city’s hyperstimulation, is oblivious to it.”

Schwartz treats this habituation as entirely negative, since it’s why we lose our appreciation of once-new pleasures. “When it first became possible to get a wide variety of fruits and vegetables at all times of year, I thought I’d found heaven,” he writes. “Now I take this year-round bounty for granted and get annoyed if the nectarines from Israel or Peru that I can buy in February aren’t sweet and juicy.”

Habituation is indeed a fact of human psychology. That’s one reason we like novelty, including different cuts of jeans. But grumpy social critics like Schwartz never consider the obvious thought experiment: Would you like to go back to the world with fewer options? Granted, dealing with lots of choices causes frustration and regret. But would you really be happier, once you’d become accustomed to them, if those abundant choices disappeared?

Postrel also writes about "satisficing" and taking search costs into account--a concept familiar to any economist.

Best of all...

Schwartz writes that “the proliferation of choice in our lives robs us of the opportunity to decide for ourselves just how important any given decision is.” To the contrary, only the proliferation of choice gives us the opportunity to make the decisions we individually deem most important.

Postrel has it right. Schwartz's comment makes no sense.

So let me take this one step further. What do these "grumpy social critics" think we should do about all this choice? I can't imagine that they would favor regulation on the permissible varieties of orange juice, toothpaste, or whatever. In fact, according to Postrel's article, Schwartz offers personal advice on "satisficing." Nothing wrong with that, if that's as far as it goes. Isn't it a great world that the publishers of books see fit to publish a variety of books so that someone who happens to be seeking Schwartz's advice can find it among the many books in print? After all, someone might find it useful.

Or am I supposed to feel guilty because I have all these choices and actually like it? Should I long for the days of "one-size-fits-all"? Sorry. I don't. I like my orange juice pulp-free, thank you.

Via Market Power, this one takes the cake.

CHICAGO - It sounds like the meter maid's version of a speed trap: A ticket for parking at a meter that was installed after you park your car.

But that's what happened in Chicago last week, where a handful of motorists returned to their vehicles and found parking meters - and tickets - that weren't there when they parked.

According to a spokeswoman for the city's revenue department it was all just an innocent mistake. The way Efrat Dallal explains it, the vehicles were parked on a stretch of roadway where the meters were temporarily removed during street construction. Then, she said, the meters were put back and the vehicles parked in front of them were ticketed.

But some motorists wondered if that was the case after at least one of the tickets was apparently postdated several hours after it was placed on a car.

That's a good story, but it's not the only good Chicago parking story. Unfortunately, Chicago sometimes misdirects their parking tickets. Lots of people who have never been to Chicago get them. Thing is, I've received a parking ticket for parking in a place where I had never parked. It wasn't from Chicago, it was from Iowa City. What made it easy to contest was that the vehicle description was all wrong. The person writing the ticket probably entered a character from the license plate incorrectly. I was told that it happens all the time. I would guess that is often the case in Chicago. I mean after all, when you write millions of tickets, there are going to be transcription errors and some poor guy in Vandalia is going to get a Chicago parking ticket.

I'll bet that in the room I'm sitting in there are at least 30 devices that contain at least one integrated circuit chip (most of these devices are hooked up to a computer--counting them as one the count is probably still at 15 or more). Throughout the house, the number of items is surely in the hundreds (kids toys, you know).

Jack S. Kilby invented the microchip that makes all of those devices so small. It really is amazing. The NY Times obituary tells some of the story.

Do consumers have too much choice? Stacy Schiff seems to think so. (NY Times)

In taking cluster analysis and its classifications to the logical extreme, are we not building a superfinicky society? Five minutes in any Starbucks line will answer that one. We used to be one nation, undivided, under three networks, three car companies and two brands of toothpaste for all. Today we are the mass niche nation. This is a country in which 40 percent of the eligible population doesn't vote, but can be expected to maneuver its way through a sprawl of options every time it heads out for tooth twine. Increasingly the brick-and-mortar world resembles the virtual one: an infinite landscape of microscopic subcategories, in which one loses oneself, twice.

A friend in Seattle - I'll call him Mitch, because that is his name - reports a full-scale identity crisis in the toothpaste aisle. There he stood, two coupons in hand. Was he ready to become a rejuvenating-effects, tartar-protection kind of guy, or was he wed to the fight against tobacco stains? And to think it all used to boil down to squeezing from the bottom.

The transformative power is dizzying. The pressure is on; the paralysis sets in. It's like a torture session with a demonic optometrist. If A is better than B, and 2 is better than 3, is A better than 2? How to choose among tartar-control and whitening and breath-enhancing? And moreover - this is America - why should we have to? I want it all. Darwinistically speaking, shouldn't "whitening" have automatically ceded to "extra whitening" anyway?

I happen to think consumer choice is good. In fact, I can't get enough. Russ Roberts (Cafe Hayek) agrees in this NPR interview from back in March.

UPDATE: Until today I had not noticed that Don Boudreaux (also of Cafe Hayek) wrote this in response to a letter writer responding to Schiff. Radley Balko agrees as well. Deb Frisch does not agree, but Don doesn't sweat it.

I find this interesting on many levels. First, David Davis was from central Illinois. His house is a significant local historical site. Second, I really enjoy reading about American history between the Civil War and 1900. Third, it's a good reminder that the country was pretty evenly divided back then too. (That is, of course, much of what makes that period of history so interesting to me.)

Macroblog has the weekly update. Note that for one brief moment, it looked like the market was anticipating a pause in the rate hikes until the PPI and retail sales numbers came in. But now it once again looks like the most likely outcome in the eyes of the market is for another 75 basis points by October.

There are 3 meetings between now and October, so the expectation of 25 b.p. per meeting seems to be holding.

I don't think I even need to mention that the implied probability of a 25 b.p. increase at the next meeting is almost 100%.

William Poole of the St. Louis Fed doesn't see a conundrum. Read the whole speech here.

The fact that the 10-year bond has not exhibited a persistent trend over the past 18 months or so while the Fed has been increasing the target fed funds rate by 200 basis points is not evidence that something is awry with monetary policy. Think of the issue this way. At the beginning of a planning period the Fed has in mind a probable course for the economy and expectations about the policy adjustments that will be consistent with long-run policy objectives. Suppose the market has the same understanding as the Fed. Suppose also that events turn out largely as expected. Then, everything goes according to plan, including policy adjustments and the course of bond rates. In fact, in January 2004 the Eurodollar futures contract for June 2005 traded at an average rate of 2.81 percent, which was not far off the target fed funds rate of 3.0 percent set by the FOMC on May 3, 2004.

I am not claiming that the Fed had a firm plan in mind in January 2004 to reach a target fed funds rate of 3 percent in May 2005, but rather that events have simply worked out that way, corresponding rather closely to the market’s best guess as to how events would unfold. In any event, the fact that everything goes about as expected is certainly not evidence of a policy problem.

I would be delighted, as would professional forecasters, for the string of accurate forecasts to continue. But we would be well advised not to forget those forecast standard errors. They have not vanished. With respect to forecast errors, the future is more likely to be like the past several decades than like the past year. If real growth and/or inflation depart significantly from current expectations, then we will see a persistent trend in the bond rate. I hope we do not see such an outcome, for I believe that the current outlook for the economy is quite favorable. I hope that current expectations are realized.

Poole doesn't use the term "soft landing." It's not much of a stretch to think of his observations in those terms though. The bond market seems to have a lot of confidence in the Fed's ability to engineer a soft landing--confidence that, so far at least, has been well-placed. But the final chapter of this episode has not yet been written.

A personal note: As of this fall, I will be on the faculty of Western Illinois University. Various responsibilities associated with moving have been responsible for my irregular blogging in the past couple weeks. Actual moving day is still over a week away.

While I accepted the position back in February, I don't blog much about specific job related things. And although my colleagues knew about it right away, I didn't feel the need to broadcast it to the world until I was about ready to go.

Well, we're about ready to go. And we (that includes the wife and kids) are very excited.

WIU is in Macomb, Illinois--population about 20,000 located roughly equidistant from the Quad Cities (where WIU has a growing satellite campus), Peoria, and Quincy. Living expenses are low--we are buying more house for less money. (Are you listening, Calculated Risk?) I'm eagerly looking forward to walking to the office rather than driving. I'm also looking forward to teaching in the master's degree program. I really like the fact that the building that houses the econ department is next door to the library which was ranked in the top 10 among libraries at non-doctoral universities.

More regular blogging will resume soon. The next Fed meeting will probably be the focus of any blogging I do in the next few days. Oil prices are getting everyone's attention, of course. The "conundrum" continues. Home sales figures and durable goods statistics are due out this week too. The Social Security debate has quieted down a little. Support for privatization is waning. While I consider that a shame, it's also, upon further reflection, quite understandable. Before too much more time elapses, I'll give you my version of why (which may or may not agree with other versions out there).

The nice thing about the blog is that its address is still the same, no matter where I go. Lots to do, but also lots to blog about. I'll try not to get so far behind again (except during the actual moving days).

I'm not the only economist who fancies himself an amateur weatherman. Phil Miller is a kindred spirit. And I know there are others.

If you're the type who grabs your camera when the skies turn black, you will appreciate this site from the National Weather Service. It is a new delivery format for their on-line radar images. NWS radar has been on the internet for years, so you might ask what's new about it. This product actually includes Doppler information on wind velocity. If you're in the midwest, that means you have the ability to see tornadoes as they form. Here is a "storm relative motion" radar image taken just a few minutes ago showing a suspected tornado. See the green spot just above the "g" in "Burlington"? That is an area of pretty intense rotation. When you hear them say on TV that Doppler radar indicated a tornado, this is what they mean. This is a very clear image of rotation; it's not always that easy to see.

The tornadoes will probably miss us, but the rain, wind, and hail will not. Last night it was in Phil's neighborhood, this afternoon it's in mine. Same weather system--a particularly nasty one.

Sadly, no. Many college students do not have the general knowledge of history and literature that was once almost taken for granted--even at Dartmouth. Via Betsy's Page comes this unscientific but nontheless interesting poll of Dartmouth students. Only 19.4% knew who wrote "Democracy in America" (Alexis de Tocqueville). But 83.9% knew that Helen was the reason for the Trojan War. Perhaps they saw the movie. Of course, when I was in school I saw a different movie (the one with Katherine Hepburn). Only 15.7% could name 5 Supreme Court justices.

Now, you may scoff (perhaps rightly so) that some of the questions on the survey are useless knowledge that only comes in handy if you want to go on "Jeopardy!" However, I stand up in defense of general knowledge. There should be a body of knowledge that well-educated citizens should share. At a minimum, we could start with the 5 freedoms that are mentioned in the first amendment to the constitution. Only 45.9% of the students surveyed could name 3 of the 5.

Yes, the questions in the Dartmouth survey are about western civilization, and I do think that college students need to learn the basics of western civilization. However, I would also like our shared general knowledge to include the ability to place the Ming Dynasty in the correct time period and understand the Middle Eastern influence on mathematics. General knowledge need not be limited to the west.

Via macroblog comes word of an addition to the economics wing of the blogosphere.

James D. Hamilton of UCSD has a blog called Econbrowser. Check it out! Among other things, Hamilton is an expert on oil prices, so it will be very interesting to keep up with his analysis. For starters, he says,

All but one of the U.S. recessions since World War II have been preceded by a dramatic increase in crude petroleum prices. Recent turbulence in energy markets has some analysts speculating that, in the immortal words of Yogi Berra, it could be deja vu all over again. But this oil price shock differs significantly from earlier episodes, leading me to believe that the economy will be able to adapt to the new pricing environment without a major economic slowdown.

Read the whole thing.

Calculated Risk links to this interesting paper by two physicists on the real estate bubble. Being that the authors are physicists, the model is more physics-like than economics-like, but don't let that stop you from taking a look. There are advantages to looking at bubbles through a physics lens, at least to try to identify them--and that is what the authors do. I'm not sure how far I'd try to run with the analysis (as far as predicting when the bubble will burst), but it is interesting to see what the data says.

Calculated Risk displays a map from the paper showing the bubble states and the non-bubble states. According to the authors, Illinois (along with a good swath of the midwest and south) is a non-bubble state. Of course, there is good reason to be wary any time housing prices get above their fundamentals in large areas of the country. Even in areas where there is presently no bubble, the situation bears watching. There is a frenzied nature to the market in places like California and Florida that is unsettling indeed.