« January 2006 | Main | March 2006 »
February 28, 2006
How I spent my Saturday... curling!
Did I mention that I like curling?
Well, I got my chance to try it at the Waltham Curling Club's open house this past Saturday.
The club is in the tiny town of Triumph, Illinois. I'm not sure what the population is. But I am a pretty good judge of small town population, and I'd put it at about 100. It was about a 2 1/2 hour drive (and that is the closest curling club to us that I know of). So, my wife and I packed the kids into the minivan and set out for Triumph. What a wonderful afternoon! Here I am "in the hack" listening to the advice of one of the club members before getting down and delivering the rock. (The blurry figures behind the glass are our kids watching Dad's moment of glory.)
After delivering a couple of warm-up rocks, visitors to the open house formed up teams and played three ends of a match. My wife didn't intend to try it, but after coming out to take a picture of me, one of the club members asked if she wanted to give it a shot. She did, and that was all it took. When we formed up teams, I was the skip of my team. My wife was the lead. Two others played second and third. Here I am in my role as skip, pointing out to my teammate where to aim and which way to try to curl the rock.
I did manage a couple of take-outs (I admit that one was by accident when I was trying to draw--that take-out did not materially help us). I also swept a couple rocks out of the house, preventing a score. Our team scored a point in each of the first two ends, and the other teams scored in the third. But most importantly we all had a great time.
I know there are those out there who think curling is boring or say that it is just shuffleboard on ice. Get out there and try it. It is not easy. In fact, it poses a challenge similar to golf. Many golfers, myself included, keep coming back because you never achieve perfection. At the end of every round you remember that shot that could have been better--the missed birdie putt, the sliced tee shot, etc. Even after this one experience, I can see curling having that same appeal. You can't help but want to try again and do better. Just ask my wife, who once cringed every time I turned the TV to curling during the Olympics. All it took was one throw and she was hooked. It is fun, challenging game that values sportsmanship and fair play as much as strategy and skill.
We would like to thank the wonderful folks at the Waltham Curling Club for their hospitality in putting on the open house and letting a bunch of newcomers try their hand at the game. If they do it again next year, we'll be back.
Posted by William Polley at 01:37 AM | Comments (1) | TrackBack
February 24, 2006
Michael Darda doesn't think it's manipulation either
PGL (Angry Bear) points us to Darda's piece in the National Review Online:
The neo-mercantilist flat-earth society, which includes members of both parties, doesn’t seem to understand that a fixed (and now sliding) peg for the Chinese yuan simply means that China outsources its monetary policy to the Fed. This is no different from the benefits many countries have achieved by scrapping their own currencies in favor of the dollar. It is telling that the anti-China crowd in Congress has not taken aim at other dollar-linked or dollarized countries with destructive tariff proposals or charges of currency manipulation. Where are the tariff threats or cries of currency manipulation against Ecuador, El Salvador, East Timor, Panama, Lebanon, Hong Kong, Saudi Arabia, Kuwait, or Malaysia, all of which either use the dollar as legal tender, fix their currencies to it, or manage them in a tight band against it? Fixity is the antithesis of manipulation, not the cause of it. Apparently a passing grade in Economics 101 isn’t a prerequisite for ascending to the U.S. Senate.
As Nobel Laureate Robert Mundell recently argued, an appreciation of the yuan could impose deflationary pressures on the Chinese economy, fan tensions in rural areas, and cut China’s growth rate. The result likely would be slower Chinese growth and lower incomes, which would cut the demand for U.S. exports — precisely the opposite of the intended effect. While a modest appreciation of the yuan probably would carry few risks given the dive in the dollar’s value during the last few years, a significant appreciation would surely be deflationary.
It is also quite telling that the strongest advocates of yuan appreciation (or tariffs on Chinese goods) never advocated a devaluation of the currency when China was dragged into deflation by the steady appreciation of the greenback. In other words, the protectionists in Congress want it both ways, which means they are both inconsistent and wrong.
PGL agrees with Darda two respects: his disdain for trade protection and his respect for Robert Mundell. But in the comments to his post, PGL says that Darda gets it wrong in saying a fixed exchange rate is not manipulation. As I stated here, I'm of the opinion that it's not manipulation as well.
For me it comes down to this. China made a decision over a decade ago to fix its currency to the dollar. This was before the massive explosion of growth and before the Asian financial crisis. They have managed one of the most successful hard pegs in the region, and it probably saved them a lot of grief during the crisis of 1997-98. On the other side of the crisis, they kept that peg right where it had always been. The stability of the currency was, no doubt, part of the reason that so many firms wanted to invest there in spite of the strict capital controls. Yet, the fact that they had kept such a hard peg for so long began to work against them. With all that growth, people recognized that this exchange rate would not work forever. Revaluation is inevitable, but when?
It was at that point that this situation became a game theory exercise.
Most people also realize that a large sudden revaluation would be bad for China. This is a gradual process. Too gradual for some tastes. But I can't fault the Chinese for erring on the side of caution. I might fault them a little for things like this... I won't say I'm totally happy with the way things are progressing. But I don't think a 27.5% tariff is the answer. That's short term thinking for a long term problem.
I will say that Darda's complaint "Where are the tariff threats or cries of currency manipulation against Ecuador, El Salvador, East Timor, Panama, Lebanon, Hong Kong, Saudi Arabia, Kuwait, or Malaysia...?" is a little disingenuous. Comparing China to East Timor? Please. The stakes are higher with China, and I think we have a right to dialogue with them about the pace of reform. But I don't like using protectionist rhetoric to get them to dialogue. Maybe some people think that talking tough on tariffs will force the Chinese president to listen to us when he visits Washington in April. I'm not convinced by that argument. On the contrary, it could backfire.
To sum, the yuan is undervalued, revaluation is inevitable and we should work with them to make sure that it happens at a pace that promotes stabilization in the region. But to threaten tariffs when China is moving in the right direction (and when just 4 months ago the Treasury seemed satisfied with the process) sounds like we're playing election year politics with a process that will necessarily play out over a much longer horizon. Justifying it by calling them "currency manipulators" doesn't do it for me. Like many of you, I lean towards flexible exchange rates. I hope that someday China's economy is healthy enough to float more-or-less freely with the dollar. The Chinese are simply more patient about how to get there than many of us are.
Posted by William Polley at 07:30 PM | Comments (1) | TrackBack
How's progress on opening up the banking system in China?
Apropos of my last post on China, macroblog quotes from these two Wall Street Journal articles. His parentheticals along with a couple of quotes...
More competition (and opportunity) looms...
China is opening its vast retail-banking market to foreign institutions at the end of the year, under its World Trade Organization obligations. Foreign investors will then have a shot at China's $1.7 trillion in savings.
... sort of:
But foreign banks' true access to that money is limited by their tiny branch networks. HSBC has the biggest presence of any foreign bank in China, with its 20 banking outlets, compared with some 20,000 for ICBC, the country's biggest bank.
And there is this (also on page C1):
Chinese regulators are planning a policy change that could trip up foreign banks in China just when they are being granted fresh rights to expand.
Within the next few months, the China Banking Regulatory Commission plans to ask foreign banks to change the way they are incorporated, as well as to make accounting and management changes, to roughly conform to the way Chinese banks are structured, according to a senior official at the watchdog agency...
The most far-reaching measure is a request that foreign banks put China operations into a stand-alone entity that is locally incorporated, according to the official and a senior officer of a foreign bank who has been briefed on the plans. The steps are necessary to enhance regulation and control risk, the regulator said.
Under the new rules, foreign banks would face requests to pony up more capital and possibly higher taxes than they now pay, the official said.
It seems likely that they are worried about foreign banks repatriating their profits. Locally incorporated stand-alone entities would be easier to regulate. More twists and turns in this process are turning up all the time.
Posted by William Polley at 03:51 PM | Comments (0) | TrackBack
Currency manipulators?
This Wall St. Journal (subscription req'd) article alerts us to a potentially troublesome situation. To those who watch these events closely, it's just another drip from the faucet. It's not going to go away any time soon either.
Last week, U.S. Trade Representative Rob Portman announced a task force to take up complaints about unfair Chinese trade practices. U.S. politicians allege that China deliberately keeps its currency weak to make its exports cheaper in dollar terms and U.S. imports more expensive.
Now, the U.S. Treasury, which has so far sought to avoid confrontation with Beijing over the currency issue, is preparing the ground for a possible decision to label China a "currency manipulator," in a regular review scheduled for April, although the semiannual report often is issued well after the scheduled release date. The Treasury has been sounding out Wall Street investors about such a move, which would require the U.S. to open formal talks with China on the issue.
I have trouble understanding how they get "currency manipulator" from a fixed exchange rate whose only move in the last decade has been (albeit slightly) in our favor. I understand that it is a political label. The effect of the label is to force talks between the two countries. Ok, fine.
But this business about a 27.5% tariff on imports from China is ludicrous. All that would accomplish is to turn the clock back on our economic relations with China. It's not going to force them to speed up the financial modernization process as much as Congress might like to think it would. Even if it did, a revaluation is not going to solve all our problems. It may not even shrink the overall trade deficit that much at all.
What is odd is the way that Secretary Snow is turning around 180 degrees on this issue so suddenly. Why it seems like only a few short months ago, I posted a link to this story from the New York Times.
BEIJING, Oct. 17 - For two years, Treasury Secretary John W. Snow has pushed and prodded China to let its currency float more freely. On Monday, he declared his satisfaction and changed the subject.
After a week of meetings from Shanghai to Beijing, Mr. Snow buried his specific demands for the yuan beneath a broader call for China to overhaul its system of banking and investment.
The stance sounded bolder and more ambitious, a demand for China to clean up its banks, build a sophisticated market for trading currencies and let Wall Street firms become full-fledged players in the stock market.
But the new call was also a retreat. By closely linking the narrow issue of the currency to long-term goals of "financial modernization," Mr. Snow implicitly gave Chinese leaders years to adopt anything close to a floating exchange rate.
"We are here to encourage the progress, to support the progress," he said on Monday. "Moving toward a truly flexible exchange rate regime requires quite a large number of steps," he added. "We recognize that will take some time."
And you thought I'd forgotten!
As I have pointed out here and here more recently, steps have been taken moving China in the right direction. So what gives? It's not unambiguously clear that the President himself would favor the tariff option (been there, done that). Does this have to do with the Congressional election cycle? Perhaps. Is it just cheap talk? Will Sec. Snow do another turnaround in a few months? Are they positioning themselves to claim victory if there is another small revaluation this year?
I think you know how I would answer those questions at this point. This is something we definitely want to keep an eye on.
Posted by William Polley at 12:12 AM | Comments (4) | TrackBack
February 23, 2006
Debt ceiling follies
Mark Thoma points us to this John Berry column (Bloomberg)
Feb. 23 (Bloomberg) -- The scary, totally unfunny debt ceiling farce is playing once again in Washington.
With the federal government debt about to hit the $8.18 trillion legal limit, the Treasury Department last week suspended sales of special securities bought by state and local governments so that regular auctions of Treasury bills and notes could continue.
More such steps undoubtedly will have to be taken in coming weeks until Congress screws up the courage to increase the debt limit. At some point next month, Treasury will run out of such stop-gap measures and regular securities auctions may have to be postponed.
F. Ward McCarthy of Stone & McCarthy noted that Treasury officials said they were confident Congress would act ``because it would be in `nobody's interest' to fail to do so.''
``Let's hope that this confidence is not misplaced, because it could be very disruptive,'' McCarthy told his clients on Feb. 17. ``While it was in nobody's good interest, prior debt ceiling impasses have resulted in Congress orchestrating intentional delays in passing increases in the debt ceiling, temporary increases in the debt ceiling, interruptions to the Treasury financing calendar, the threat of government shutdowns, and the attachment of questionable parasitic legislation to increases in the debt ceiling.''
The problem, of course, is that voting to increase the debt ceiling is approving profligate behavior, even though they have little choice because of earlier tax and spending decisions.
The rest of the article deals with the debate over making the tax cuts permanent. I'll save that for another day. Don't worry, the issue isn't going away. I want to take up this little game they are playing with the debt ceiling.
The appropriate analogy here is a credit card where you, the spender, also control the credit limit. So, after a big shopping spree, you think that you'll send yourself a message by deliberately not raising the credit limit--even though your next trip to the grocery store will surely put you over the limit. Serves you right, you say. Maybe a week of eating cold cereal instead of your usual breakfast, lunch, and dinner will teach you a lesson. Then, to complete the self-flagellation, you tell all your friends about the extreme sacrifice you have been forced to make and how this will steel your resolve to improve your spending habits. You want their pity. You want to be recognized for your "sacrifice."
Who wouldn't be able to see through that? It's silly, isn't it?
Eating cold cereal for a week is not going to teach you discipline, and it's not sustainable in the long run. The long run solution is to avoid the spending spree in the first place.
Choices have consequences. Playing games with the debt ceiling does not negate those consequences. The present value budget constraint must hold. You can vote either side of the constraint up or down as you please. The other side must rise or fall with it. Full stop.
But alas, who among us believes that this is the last time we'll be seeing this silliness play out?
Anyone?
That's what I thought.
Posted by William Polley at 02:21 AM | Comments (3) | TrackBack
Iwo Jima Anniversary
Sixty-one years ago today, the Marines captured Mount Suribachi and this photo by Joe Rosenthal of the Associated Press become one of the most reproduced photos in history. This photo and many others are in the public domain and can be seen at the National Archives.
"On This Day" from the NY Times reminds us of the anniversary.
Posted by William Polley at 01:46 AM | Comments (0) | TrackBack
February 22, 2006
Fed Vice Chair Ferguson resigns
From the press release:
Roger W. Ferguson, Jr., submitted his resignation Wednesday as Vice Chairman and as a member of the Board of Governors of the Federal Reserve System, effective April 28, 2006.
Ferguson, who has been a member of the Board since November 5, 1997, submitted his letter of resignation to President Bush. He will not attend the March 27-28 meeting of the Federal Open Market Committee.
"Roger has made invaluable contributions to the Federal Reserve and to the country," said Federal Reserve Board Chairman Ben S. Bernanke. "He led the Fed's first response to the 9/11 terrorist attacks, was a strong advocate for increased transparency of monetary policy, and ably represented the Federal Reserve in important international fora. I value his friendship and counsel greatly and wish him all the best in his new endeavors."
Ferguson, 54, was first appointed to the Board by President Clinton to fill an unexpired term ending January 31, 2000. He was then appointed by President Bush to a full term that expires on January 31, 2014.
Ferguson is the last member of the Board who was not originally appointed by President Bush.
Mr. Ferguson was involved in a number of important activities while at the Fed. His work has largely been in the area of payments systems and financial stability. It's important work that perhaps does not always get the attention it deserves. As the senior member on the Board, his institutional experience will be missed as well.
Here is an interview with Mr. Ferguson that the Minneapolis Fed published back in 2000.
Posted by William Polley at 10:46 AM | Comments (1) | TrackBack
February 21, 2006
FOMC Minutes
Things are extremely busy around here. Links only today.
The money quote:
In the Committee's discussion of monetary policy for the intermeeting period, all members favored raising the target federal funds rate 25 basis points to 4-1/2 percent at this meeting. Although recent economic data had been uneven, the economy seemed to be expanding at a solid pace. Members were concerned that, even after their action today, possible increases in resource utilization and elevated energy prices had the potential to add to inflation pressures. Although the stance of policy seemed close to where it needed to be given the current outlook, some further policy firming might be needed to keep inflation pressures contained and the risks to price stability and sustainable economic growth roughly in balance. In the view of some members, the possibility of additional policy moves was reinforced by readings on core inflation and inflation expectations that were somewhat higher than was desirable over the long run. However, all members agreed that the future path for the funds rate would depend increasingly on economic developments and could no longer be prejudged with the previous degree of confidence.
And of course...
As this meeting marked Alan Greenspan's last as a member of the Committee, meeting participants took the opportunity individually and collectively to pay tribute to his many years of outstanding service to the Federal Reserve and to the nation. They expressed their appreciation for his collegial and successful leadership of the Committee and of the Federal Reserve System and emphasized the privilege and honor they felt in having served with him.
Wall Street Journal's take (subscription required)
Posted by William Polley at 04:14 PM | Comments (0) | TrackBack
Slippery as ice
Why is ice so slippery? Read here (NY Times)
Posted by William Polley at 01:38 AM | Comments (0) | TrackBack
February 20, 2006
A bizarre argument against ticket scalping: Olympic edition
The Sports Economist links to this NY Times story. Apparently when early sales were lagging, sponsors and national Olympic committees began buying up blocks of tickets to Olympic events. The problem is that those tickets are not being used, and the sponsors are trying to sell them for whatever they can get.
"The tickets have been sold, but maybe the spectators have preferred to go somewhere else," said Mario Pescante, an Italian under secretary of state who is the top government representative to the Games and a member of the International Olympic Committee.
...
Still the problem remains, and it touches on the interests of the sponsors, potential spectators, the scalpers and, ultimately, the organizers of the Games, who are eager for Turin to be seen as a grand success.
The sponsors, looking to recuperate some percentage of the money they have spent for tickets, have unloaded them on ticket brokers and scalpers through connections made over years and multiple Olympics. And starting in the early days of the Games, scalpers spread out around town with their business cards, cellphones and bricks of tickets, some even setting up temporary offices.
But their interests conflicted with two other powerful ones. First, the Turin organizers were having trouble selling tickets, and every one sold by a scalper would in theory subtract from revenue made by sales through the official box office. Second, ticket scalping is, plainly, against the law.
...
But the scalpers say they are providing a public service. Many Italians cannot afford the high prices of the official tickets — figure skating prices, for example, run from about 75 euros to about 293 euros (nearly $90 to more than $350) — and scalpers say they are selling, in most cases, far below the official prices.
In the U.S. selling at below face value is usually allowed except in certain locations (e.g. state property or at the event venue). See this Cato paper for a summary. When economists talk about the potential efficiency gains from allowing scalping, it is usually in the context of allowing the price to rise to eliminate non-economic forms of rationing, like queueing.
Here we have a case where tickets have already been sold once and the organizers want to prevent them from being sold again at below face value to protect their monopoly on selling them at face value (which is above the equilibrium price).
The inefficiency is in the form of excess supply instead of excess demand. Instead of not being able to find a ticket that you can afford, you can't afford a ticket that you can find.
And on another Olympic note, I was right about the U.S./Canada curling outcome. I didn't want to be right, but the U.S. just could not finesse the shots the way Canada could. They will meet again in the medal round. The U.S. proved they can stay with the Canadians, but they have to do more. I don't think you're going to beat Canada by blanking ends and trying to stay even. Canada's only losses have been when they are down in the 8th end. You're not going to beat them in the last two ends.
Posted by William Polley at 01:21 PM | Comments (1) | TrackBack
February 16, 2006
How much math? (continued)
If you haven't read the previous post and the comments, start there and come back.
Frequent commenter "Lord" writes in:
Schools can teach it but only the students can learn it. Is basic competency all we are talking about though? It barely makes for a globally competitive workforce. At the same time, how many positions do you see for math and science graduates? Not many at all. One takes math and science to pursue a graduate degree in it, or one doesn't take it at all. The demand must change for any serious change in supply.
Is basic competency all we are talking about? Yes and no. You see, I'm not sure that the people surveyed in the poll know enough about math to be able to judge whether they or their kids are getting enough. I'll say it again. To most people, math is arithmetic. And for a lot of jobs, arithmetic is all that is necessary. But even for those jobs where arithmetic or simple algebra (cf. Donald Coffin's comment) is all that is required, people need to be able to carry out calculations and estimations quickly, accurately, and with confidence. Perhaps many of the parents surveyed think that if you can do that, it's enough math. But ask junior high and high school students if they think it's necessary and I know what they'll say. (They'll say the same thing college students say about general education requirements, for the same reasons--and be wrong, for the same reasons.)
Basic competency in math and science is now, and will continue to be, necessary for people who want to be flexible enough to survive in an ever changing job market.
What about going beyond that? The good news is that colleges and universities make an effort (imperfect, yes, but an effort) to ascertain the level of technical skills required in the jobs for which they prepare their students. I was just reading in a professional newsletter that the math department at the University of Iowa had recently reworked their engineering math sequence as a result of meetings with the engineering department. In their case, the changes were driven by accreditation, but this need not always be the driving force. (Note: The link is to the home page of FOCUS, articles seem to be archived to the web with a lag, so the article I refer to is not on that page... yet.)
When we require calculus (and more), we usually have a pretty good idea why. And we do so in the context of a market that demands the services of those graduates. We aren't perfect. There is much that can be done to improve, but overall the market is pretty efficient. Students who take advanced math in college get a good rigorous background in the subject. Some pursue advance degrees, while some work on the applied side of things. Future engineers should take differential equations, those who do will be more employable as engineers. Future lawyers don't need to--it won't affect their ability to find a job as a lawyer much at all.
But future lawyers need to be able to compute percentages just as much as anyone!
To be continued... (in the meantime, keep the conversation going)
Posted by William Polley at 03:02 PM | Comments (5) | TrackBack
How much math and science do students really need?
WASHINGTON (AP) -- Science and math have zoomed to the top of the nation's education agenda. Yet Amanda Cook, a parent of two school-age girls, can't quite see the urgency.
"In Maine, there aren't many jobs that scream out 'math and science,"' said Cook, who lives in Etna, in the central part of the state. Yes, both topics are important, but "most parents are saying you're better off going to school for something there's a big need for."
Such as?
Nationwide, a new poll shows, many parents are content with the science and math education their children get -- a starkly different view than that held by national leaders.
Fifty-seven percent of parents say "things are fine" with the amount of math and science being taught in their child's public school. High school parents seem particularly content -- 70 percent say their child gets the right amount of science and math.
Of course, the parents probably get their information from the kids.
Students aren't too worried, either, according to the poll released Tuesday by Public Agenda, a public opinion research group that tracks education trends.
Only half of children in grades six to 12 say that understanding sciences and having strong math skills are essential for them to succeed after high school.
Oh dear.
For one thing students in grades 6 through 12 don't know enough math (until maybe grades 11 and 12) to know what they will need to know. Most people think math is arithmetic. Certainly that's what an 8th grader would think. Do I really need to know how to do fractions and percentages to be successful?
Yes, because if you're on the job somewhere and you need to know what 20% of 350 is and you take out a calculator (or worse, say "I don't know"), your boss might think you're not that bright.
Calculus is negotiable. Basic math and science competency is not. Ability to do estimation and mental arithmetic is not negotiable.
There's a lot of stuff beneath the surface of this article that I don't have time to get into tonight. Comments welcome. I'll be happy to come back to this later.
Posted by William Polley at 01:56 AM | Comments (6) | TrackBack
February 15, 2006
Will gas prices fall in the near future?
Maybe. See this Reuters story,
NEW YORK (Reuters) - Oil prices slumped on Wednesday, extending a 15 percent slide over two weeks, as dealers focused on brimming U.S. fuel stockpiles.
A U.S. government report on Wednesday showed gasoline inventories climbed to the highest level since 1999, when energy prices were near historic lows.
"This is a situation where you've got a lot of supply on hand, leading to a drop in prices," said Jason Schenker, energy analyst at Wachovia.
...
"The question is where do we go from here? We've fallen so quickly in recent sessions, will there still be momentum to go down to the low $50s?" said Phil Flynn, analyst at Alaron Trading.
The U.S. Energy Information Administration reported Wednesday that U.S. gasoline stockpiles rose 2.2 million to 225.5 million barrels last week, the seventh weekly build in a row, thanks to strong imports and slow demand growth.
Click here for more from the EIA. Retail prices have fallen almost 6 cents in the past week. If oil prices continue to stay low and inventories stay high, there is definitely room for the retail price of gas to fall a little more--maybe a few cents a week for a couple weeks until it finds the new equilibrium. Of course it always seems like the retail price of gas is slow to respond to changes like this. The next few weeks might give us one of the best opportunities in some time to observe the dynamics. Unless, of course, there is another shock.
UPDATE: Maybe not. Spring maintenance at refineries could reverse the trend starting sometime next month. But the fact that prices have fallen during a time of year when prices have tended to rise in the last couple years is worth noting.
UPDATE (2/23/06): Retail prices are down about another 4 1/2 cents from the prices reported when I posted this. This page has the current data.
Posted by William Polley at 03:06 PM | Comments (2) | TrackBack
Chairman Bernanke's debut before Congress
Introductory remarks posted on Fed's website.
For the first time in almost 20 years, a new face greeted the House Financial Services Committee for the semi-annual monetary policy testimony. Overall, it was an engaging session. Chairman Bernanke was upbeat about the prospects for the economy in 2006 and 2007, tipping his hand a bit about the potential for even higher short term interest rates. He also pointed to the greater stability of the U.S. economy as being partly responsible for keeping long term inflation expectations (and therefore long term interest rates) in check.
The questioning is always the more interesting part of the session. His responses were brief and straightforward--a departure from the responses of his predecessor that was noticed by the committee. He answered questions on fiscal policy by pointing out that it is Congress's responsibility to choose the size of government and that tax revenues should reflect that choice. Some of his questioners on the committee might see this as taking the safe way out, but others outside the committee, myself included, find this approach preferable to having the Fed chair offer specific recommendations on fiscal policy.
He was well-prepared, almost scripted, for questions about the discontinuance of M3 and on his statements on inflation targeting. On questions of income inequality and wages, there was candor without offering specific policy recommendations. Overall, there was an air of openness throughout the questioning, but it was tempered by appropriate respect on Mr. Bernanke's part for the role of Congress in policy matters. Mr. Greenspan is a tough act to follow, and the committee had developed a unique relationship with the former Fed chairman. Nonetheless, I think the committee might have come away from today's testimony with a positive outlook on the relationship they will have with Mr. Bernanke over the next few years.
UPDATE: The Wall Street Journal quotes the last paragraph above along with statements from many other economists both business and academic. Most of the comments have to do with insights into the future of monetary policy that we might have gleaned from today's testimony. For example,
[Bernanke] is learning that Mr. Greenspan's Greenspeak, a totally dense and largely indecipherable approach to answering questions, really is required when dealing with Congress. So much for being clear. Being clear only gets you into trouble. So, what should we take away from the testimony? Mr. Bernanke believes that inflation is job one now and always. So, if there is to be a mistake made, it will be on the side of lower not higher inflation and therefore more rather than less tightening. -- Joel L. Naroff, president and chief economist, Naroff Economic Advisors
and...
No surprises today: He struck a hawkish tone, as expected. This is consistent with what we heard from his warm-up acts last week. Chicago Fed Prez Michael Moskow and Dallas Fed Prez Richard "8th Inning" Fisher struck similar notes. Moskow suggested that rates are "historically low," that inflation was "creeping into the core" CPI rate, and suggested that rates may need to "rise further beyond neutral" to kill inflation. We listened hard as we could to the new Fed head, but were unable to discern anything inconsistent with Moskow's speech. Bernanke stated that "resource utilization was rising, cost pressures increasing, and short-term interest rates still relatively low." That hardly implies a Fed nearly finished with their tightening cycle. -- Barry Ritholtz, Ritholtz Research; blog: The Big Picture
Naroff and Ritholtz are right on the money, but as Ritholtz says, "No surprises." I saw nothing in the prepared remarks or the questioning that causes me to alter my opinion on where the Fed is going to take interest rates. Wall Street took a while to parse it all and at the moment appears to have reached the same conclusion.
The question/answer period is always more interesting, and even more so for a new chair. Kash Mansori likes what he heard.
Bernanke generally provided answers about numerous topics (e.g. the deficit, the minimum wage, trade protection, the regulation of Fannie Mae, R&D, personal saving) that a large majority of professional economists would probably agree with. In that sense, I think that he will be a good representative of the profession's consensus, to the degree that there is one. And for the most part, I think that's probably a good thing in the world's most powerful central banker.
And that is precisely why I found myself nodding my head several times during the question/answer session. Bernanke gave answers that I would be comfortable giving in class or in an interview. On balance I do agree that is a good thing, and I think he will wear it well. But Mr. Bernanke will always have to remember that good academic answers don't always go over well in the media. Just ask Greg Mankiw.
Tomorrow, the Senate. I think Bernanke has set a good benchmark upon which to build his reputation going forward.
Posted by William Polley at 11:51 AM | Comments (1) | TrackBack
Hyperinflation in Zimbabwe
Click this link for some quotes that pretty much speak for themselves (BBC News). Thanks to King for the link. Here is one quote:
I don't even know if I'll have a job at the end of the week, because there is so much uncertainty. There are so many companies closing down.
It is quite interesting to see people going in banks with bags and sometimes even suitcases.
You know that there are large amounts of money in there - which unfortunately are not going to buy much.
Go to the link for the rest.
Posted by William Polley at 11:05 AM | Comments (1) | TrackBack
February 13, 2006
Curling!
When the winter Olympics come around, there are certain sports that I really like to watch. I'll watch just about anything where people are rocketing down a hill at 80mph.
And I will stay glued to the TV for hours watching people slide rocks on a sheet of ice. I love watching curling.
John Palmer (EclectEcon) reminds me of my New Year's prediction where I predicted that Canada would defeat the U.S. in curling. Mind you, I make that prediction absolutely hoping that it does not come true. Most of the U.S. team is from my home state of Minnesota. I would love to see them win. But Canada put on an impressive show (at least from the line score) today against Germany. (Alas, I could not find it on American television.) The U.S. capitalized on a lot of mistakes by Norway (and made some mistakes) in the first match, then blew it on the last rock against Finland. From what I have been able to gather about the Canadian team, I don't think either performance by the U.S. today would have matched up to Canada. I fear my prediction may come true.
We'll see what happens on the women's side soon. According to the schedule, they should start playing in a few hours. Both teams lost today. They will be eager for a win. It should be competitive. Again, I root for our Minnesota curlers but give the edge to Canada.
If you've never watched it, just give it a chance. You might get hooked.
Posted by William Polley at 10:08 PM | Comments (1) | TrackBack
It broke away like a speed skater on the bell lap...
I'm talking about the fed funds probabilities, of course. Yes, for March it's been a foregone conclusion. But the May probabilities have been hovering around 50-50 until the first couple weeks of this month. Read the details at macroblog.
Posted by William Polley at 03:41 PM | Comments (0) | TrackBack
February 10, 2006
Apparently I wasn't the only one confused
Bloomberg reports that the nomination of Kevin Warsh to the Board of Governors of the Fed is drawing some fire. (Hat tip: Division of Labour)
Feb. 10 (Bloomberg) -- Most of President George W. Bush's nominees to the Federal Reserve have earned accolades from across the economic and political spectrums.
And then there's Kevin Warsh.
Bush's nomination of the 35-year-old White House aide -- a lawyer by training who would become one of only two members of the Fed's seven-member board of governors without a Ph.D. in economics -- has been greeted by criticism and bewilderment by some former Fed officials and economists. They point to his political connections and inexperience, and say the White House could have found a better-known, more qualified choice.
``Kevin Warsh is not a good idea,'' said former Fed Vice Chairman Preston Martin, who was appointed by Ronald Reagan in 1982. ``If I were on the Senate Banking Committee,'' which must approve Fed nominees, ``I would vote against him.''
The same article also makes the following observation:
If Warsh and Kroszner are confirmed, Bush will have appointed all seven members of the Fed board.
True, but Roger Ferguson was appointed by Clinton to fill an unexpired term. Bush renewed him to a full term. The others... all Bush.
I expressed my confusion about the Warsh nomination at the time the news came out, saying I wasn't entirely sure what to make of it. I don't know what his views on monetary policy are. But the president has the right to appoint someone who he thinks will bring certain talents to the Board. There is no requirement that all the members be top-flight academic monetary economists. (Assuming Randall Kroszner is confirmed that would give us two high profile academics. Susan Schmidt Bies was in academia in the 1970s as well.) So I'm inclined to reserve final judgement until the hearings. But if I were on that committee I'd have some questions. I hope there will be some tough questions, because I'm still a little confused.
But should I get my hopes up for an in-depth inquiry into his qualifications, experience, and views on the economy? The article concludes,
While little is known publicly about Warsh's views on such Fed concerns as inflation, employment growth and the global economy, hearings on the nomination that are scheduled for Feb. 14 may shed more light. In any event, Senator Richard Shelby, the Banking Committee chairman, said in an interview that he expects an easy confirmation.
``He's very smart,'' the Alabama Republican said. ``He'll sail through.''
Necessary, but not sufficient.
UPDATE: Mark Thoma has a similar reaction.
UPDATE: Kip Esquire has more. Comments at Economist's View are decidedly negative. I think anyone nominated deserves a chance to sit in the hot seat. If I were on the committee I'd ask tough questions and if I didn't get good answers, I'd vote no. It's as simple as that. Same as I would say for anyone whose qualifications were unclear. I sure hope C-Span carries the hearings. It could be interesting.
Posted by William Polley at 11:46 AM | Comments (2) | TrackBack
February 07, 2006
Thoma and Samwick on the topic of social safety nets
Mark Thoma (Economist's View) and Andrew Samwick (Vox Baby) square off in the latest Wall Street Journal Online Econoblog.
Key quotes... Thoma:
Globalization will continue to motivate firms to eliminate these costs in any case. As social insurance is separated from the worker-firm relationship, government and individuals will be left to pick up the slack. Where I believe Andrew and I may differ is the degree to which this insurance ought to be provided by government rather than through individuals interacting in the private marketplace. There are substantial problems -- market failures -- in the private-sector provision of health and retirement insurance that are not easily overcome with market-based regulatory schemes.
Samwick...
...We do several things wrong in the way we provide health insurance to non-retirees, and our first tasks should be to undo these mistakes.
The first mistake is to make insurance voluntary when we don't subsequently exclude those who need care from getting it at the public's expense. We should make health insurance mandatory, but we should do so by putting the mandate on the individual, not the employer. Those who cannot provide proof of insurance on their tax returns should be charged an amount that corresponds to an insurance policy in their area. Implementing this on the tax form allows for family resources to be taken into consideration.
Curious about what the other mistakes are? You know what to do.
I really enjoyed reading this Econoblog, and I'll tell you why. Mark Thoma and Andrew Samwick do an outstanding job of showing the Wall Street Journal readers how economists can have a debate on a controversial subject like this. The reader can clearly identify the points of agreement and disagreement. Mark nails the question: How much social insurance should be provided by the government and how much should be provided by markets. They both note the market failures in health insurance. Samwick calls attention to the way the tax code distorts the private insurance market. By identifying the questions and highlighting specific economic issues of incentives, efficiency, and equity, they generate a lot of light and surprisingly little heat.
Posted by William Polley at 05:51 PM | Comments (0) | TrackBack
February 06, 2006
Slowing manufacturing and teenage employment
Look at these two graphs, then look at my comment on the previous post (the 14th comment).
I don't think this is a full explanation. Some of the comments to the previous post make good points that could also explain part of what we're seeing. However, if manufacturing declines, the inflow into those occupations must slow over time. If 16-19 year olds are the inflow, then this is what you might see.
Thoughts?
Posted by William Polley at 09:35 PM | Comments (0) | TrackBack
February 04, 2006
How has the employment/population ratio changed in the last few months?
Background post from May 2005. I showed these charts to give the long view starting before the 1990-91 recession.
Let's zoom in on just the last 10 years or so, including the time since I made these graphs. By the way... all of these are seasonally adjusted.
Men age 20 and over are employed at a rate about equal to that in late 2001 or early 2002. That's also about the same as late 1995. Since early last year this series has definitely been moving in the right direction.
For women the peak-to-trough distance was smaller and so have the gains since the trough. But look at where we are compared to where we were. For women 20 and over, e/p is at mid-1997 levels. If you eyeball that chart and think that 58% might be a reasonable place to be in the long run, it's hard to find too much fault with where we are.
Hmmm... I think we've found the problem. Surely some of this can be explained by schooling. Poor job prospects lead people to stay in school longer. But this is quite a persistent change from the last couple decades. Looking at the raw data going even further back in time we find that e/p fell to around 40% after the recession in the early '80s. We've been stuck between 36 and 37% for almost 3 years. I was puzzled by it last May, and I am still stumped. Why did this recession cause teenage employment to crash, and why hasn't it picked up like it did in the early '90s? By the way, the labor force participation looks the about the same for this group. There has truly been a shift in labor force participation by teenagers that is much larger and longer lasting than after previous recessions.
Does this mean that students believe that staying in school will improve their future job prospects or that it is an alternative to poor job prospects? Both? The timing with the recession would suggest the latter, but I suspect many of those students also believe the former. It's hard to disentangle them.
Snapshots of other demographics are not as bewildering. Labor force participation is very slowly and slightly shifting down for men and up for women in their twenties and thirties. There's bound to be some intra-household labor substitution that will help the overall LFPR stabilize.
But if you were to ask me what is the one question about the current labor market I would most want answered, I think you know what it is.
UPDATE: Conversation continues in the comments.
UPDATE: MaxSpeak has links to other commentaries on the labor market.
Posted by William Polley at 02:58 PM | Comments (17) | TrackBack
February 03, 2006
Payroll employment growth good, but still fails to meet expectations
Nonfarm payroll employment increased by 193,000 in January, and the unemployment rate fell to 4.7 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Job gains occurred in several industries, including construction, mining, food services and drinking places, health care, and financial activities.
Most forecasts were up in the 250,000 range. Again, the actual number failed to hit the mark. Why? Is the labor market really that bad? Or are we missing something?
Here's a really simplistic prediction of job growth in the long run. Assuming that people who enter the labor market do find a job in the long run, the growth rate of population plus the growth rate of the labor force participation rate (LFPR) should equal the growth rate of employment. It is a biased predictor because the best measure of job growth (the payroll survey) uses different data than the CPS which measures LFPR. The CPS counts more people as employed than the payroll data picks up. But if that bias is fairly stable, it won't affect our growth rate prediction that much.
So here it is, the simplistic prediction versus actual payroll growth.
For being so simple, it picks up the movement fairly well. Looks like a smoothed version of the series, which it should. The fast growth in the '80s and even in the '90s is due in part to population growth, which is reflected in the predicted value.
Lately, population growth has slowed, and you can see this in the simple prediction. Demographers predict population growth to continue to slow as the boomers age. Hence, the percentage change in payroll employment will slow unless LFPR continues to rise. Whether it is reasonable to expect LFPR to rise is another question. To say "opinions differ" is an understatement. The fact is that at this point, we don't know. I think all that it is safe to say is that LFPR can't continue to rise in the way that it did up through the mid 1990s. But suppose that we are currently right at the approximate long run LFPR--that for the next 50 years it will fluctuate above and below its current level. If that is the case, the growth rate of payroll employment will slow to less than 1% per year on average. As the chart above shows, years with job growth of 3% seem to be over. Years with job growth of 2% will become fewer.
Remember, this is a very simple prediction that is not meant for forecasting month-to-month changes, but long run trends. It's a reason to be skeptical of predictions of huge job growth over the next decade, for sure. On the LFPR (and the employment/population ratio), I've been reserving judgement. More on that later. But it's not just LFPR, population growth (which is harder to do anything about) is a big part of the story too.
Posted by William Polley at 03:30 PM | Comments (3) | TrackBack
The day the music died
Forty-seven years ago this morning, the airplane carrying Buddy Holly, Ritchie Valens, and J.P. Richardson ("The Big Bopper") crashed just a few minutes after taking off from the Mason City, Iowa airport. They had just played the Surf Ballroom in Clear Lake and were heading to Moorhead, Minnesota (the town where I would go to college some three decades later).
Buddy Holly was 22 years old, Richardson was 28, and Valens was only 17. Elvis was in the military when they died. They would have never heard of the Beatles or the Rolling Stones. I often wonder what would be different about the American music scene if they had lived to meet John, Paul, George, and Ringo, play at Woodstock, and start growing grey hairs. Though we can never know the answer, the question itself is part of their legacy. It's as if you can see that question in the picture of the smiling, bespectacled musician--forever young--his music frozen in time, unchanging, for future generations to discover anew.
Posted by William Polley at 01:12 AM | Comments (1) | TrackBack
February 02, 2006
What if you could bet on who will be in the Super Bowl...
...and if you're right you don't win money--you get a ticket to the game itself?
Read about it. (NY Times)
Joe Kocott and Ian McKinley are both die-hard Pittsburgh Steelers fans. In the past week, Mr. McKinley urgently searched eBay, Craigslist, StubHub and other sources for a ticket to Super Bowl XL, eventually buying one for $2,500, while Mr. Kocott secured tickets for himself, his wife and seven children, and nine others in early January by paying an average of $350 for 18 futures contracts that promised him tickets if the Steelers made it to the championship game.
Futures markets have existed for decades for commodities like pork bellies and oil, whose prices fluctuate over time. The advantage of a futures market is that it allows the buyer and seller to lock in a price, and in that way reduce uncertainty.
There is great uncertainty surrounding sporting events like the Super Bowl, including whether a fan's team will make it to the game and the price of tickets on the secondary market. Stephen K. Happel and Marianne M. Jennings of Arizona State University proposed a futures market for tickets to major events to reduce risk in 2002. Their idea is finally coming to fruition.
As the article by Alan Krueger explains, one of the difficulties of a market like this is that you need to be able to trust the marketmaker to be able to deliver on the tickets. Krueger suggests that sports leagues make some tickets available through these markets.
You would think that someone would have thought of this before. (When I read the article, I admit I had the immediate "why didn't I think of that" response.) I'll bet a few people thought of it and quickly dismissed the idea because of the problems associated with gaining the trust. Trust is a costly thing to establish. But if people don't have any way of knowing that the marketmaker can come through on his end of the bargain, they are going to be very reluctant to put down hundreds of dollars on such a deal.
It's a good lesson for economics students (or anyone) to see the importance of trust and enforceability of contracts.
Posted by William Polley at 12:09 AM | Comments (2) | TrackBack
February 01, 2006
Another good article for principles classes
Steven Landsburg figures out why some hotels charge for internet access and others don't.
The goal, then, is to use amenities to equalize your customers' willingness to pay. Take a stripped-down example: You've got two customers, Jack and Jill. Jack will pay $100 for a room without net access; Jill will pay $120. That poses a pricing problem. But suppose you happen to know that Jack will also pay an extra $20 for net access, while Jill thinks computers are instruments of the devil. Now the pricing problem is solved: Make net access free. Both customers will pay exactly $120 for the room-plus-net package, and that's what you charge.
But he still hasn't figured out why popcorn is so expensive at the movies.
In every important respect, the popcorn pricing problem is identical to the Internet pricing problem. If Jack will pay $10 to see the movie and Jill will pay $12, but Jack really loves popcorn, then a greedy profit-maximizing theater owner will offer to shower Jack with free popcorn until he's willing to pay $12 to get in.
But if Jack and Jill are each willing to pay $12 to see the movie, that same greedy profit-maximizing owner will charge them both $12 and bleed Jack dry at the popcorn stand.
Sometimes the numbers should work out one way; sometimes the other. Yet in the real world, popcorn, unlike wireless Internet, is never free.
It's logically possible that by pure coincidence the numbers at every movie theater in the world all work out the same way, while the numbers at hotels work out one way half the time and the other way the other half. But "pure coincidence" theory is even less satisfying than the "differential greed" theory. There must be something I'm missing that makes popcorn essentially different from Internet access. I remain stumped.
UPDATE: Landsburg also mentions movie popcorn in this article.
Posted by William Polley at 12:25 PM | Comments (5) | TrackBack