Thursday, March 22, 2012

And Selgin's review of Bernanke's history of the Fed


The History of the Fed

Here is a video of George Selgin lecturing on the history of the Federal Reserve.

Here is a video of Ben Bernanke lecturing on the history of the Federal Reserve.

They do not entirely agree about the benefits of the Federal Reserve System.

Wednesday, March 21, 2012

Double Blind Studies

The Economist reports on the pseudo placebo effect in randomised control trials.

"In a new paper, Erwin Bulte of Wageningen University and his colleagues conduct a double-blind test of an agricultural intervention—that is, the treated don’t know whether they are receiving the treatment or the placebo. The treatment is a modern seed of cowpeas, the placebo is the traditional seed. As a second experiment in a different set of villages, they do a normal RCT where the treated know that they are receiving the modern seed. Comparing the results of both experiments reveals some striking results. When the farmers don’t know which seed they are planting, there is no difference between the modern and the traditional seed in terms of yield. When they do know that they are being treated, the modern seeds yield considerably more. What the authors call the “pseudo-placebo effect” therefore accounts for the whole effect that a typical RCT would have found."

La Ceiba Microfinance Institution video

La Ceiba is a micro lending agency developed by Professor Shawn Humphrey and students at the University of Mary Washington. It emerged out of work they were doing with Students Helping Honduras. Here is a video describing what they do.

bikes for girls

Great video from the International Growth Centre about giving bikes to girls so they can go to school, explaining the research they used to determine the effectiveness of the program.

Tuesday, March 20, 2012

free stuff

gretl free econometric analsysis software (also very easy to use)

PANDA-glGo free computer Go (fun but addictive)

Monday, March 19, 2012

Colleges Are Controlling Costs

Recently President Obama received a lot of attention for effectively warning colleges to keep costs under control.Unfortunately, there is a lot of confusion about college costs. Many people confuse cost, posted tuition, and net tuition. . The cost is the full amount spent educating a student, regardless of who pays it. The posted tuition is what is listed on the college web page, but many students do not pay this amount. The net tution is what a student actually pays.

This graph is from the Delta Project it shows, for the Mid Atlantic region, the average full cost per full time equivalent student, what part is paid by the student, what part is paid by someone else, and how these have been changing. Clearly colleges have been containing costs; the total amount spent has increased very little. What has changed is the part that is paid for by the student.

Econ Talk

At Econ Talk Russ Roberts talks to Daren Acemoglu, the Kieth Richards of economics, about why nations fail.

Sunday, March 18, 2012

Bad Economics: Krauthammer on Oil Prices

Charles Krauthammer criticizes President Obama for suggesting that "Drill, Baby, Drill" wil nott lowee oil prices. He writes: "So: Decreasing U.S. demand will lower oil prices, but increeasing U.S. supply willl not? This is ridiculous. Either both do or neither does. Does Obama read his own speeches?"
Who is right. On this point it is the president. Yes, price is determined by both supply and demand, but not everyone is a large enough part of supply or demand to influence the price. If I decide to stop working it won't change the salaries of professors. If I double the amount of eggs I consume it won't increase the price of eggs. Why? Because in each case I account for a small part of the total supply and demand. The U.S. accounts for a fairly small part of supply. In terms of proven reserves it was less than 2% of the world total 2009. On the other hand, we accounted for over 20% of world consumption. Thus, changes in U.S. consumption are more capable of influencing the price than changes in U.S. production.

All of this does not imply that we should not increase oil production. Domestic oil production will generate income and create jobs. It won't, however, lower the price of gas

Saturday, March 17, 2012

Paper for Business History Conference

This is the abstract of the paper we are presenting at BHC at the end of the month.
Bradley A. Hansen and Mary Eschelbach Hansen

Business and the Evolution of Debt Collection Laws: Garnishment and Wage Assignment in Illinois, 1880-1930
In the 1870s and 1880s legislation and court rulings combined to make the wages of a head of household almost completely exempt from garnishment in Illinois. Yet by the 1930s, Illinois was regarded as one the states where it was easiest for a creditor to claim a large share of a debtor's wages. We argue that the driving force behind the evolution of garnishment and wage assignment in Illinois was the conflict between two groups of business people: large employers and businesses that supplied credit to wage earners. Large employers regarded garnishment and wage assignment as costly nuisances and sought to restrict their use. Businesses that provided credit to wage earners regarded garnishment and wage assignment as important tools and sought to minimize restrictions on their use. Each group pursued change through legislation, through the judiciary, and through private contracting. Because the conflict between large employers and businesses that provided credit was meditated through the political and legal systems, the outcomes were also shaped by the influence of other interest groups and by the ideologies of judges. By the 1930s, this combination of forces left Illinois with a relatively moderate garnishment law but virtually unrestricted use of wage assignment.

Economic Theory and Prediction

I was listening to a podcast at New Books in Law with Lynn Stout discussing her recent book Cultivating Conscience: How Good Laws Make Good People. She was arguing against the assumption of rational self interested behavior and pointed to the large amount of evidence that people often behave in ways that are not narrowly self interested. She then noted that some economists have tried to get around this by saying that people can value things other than money.  She, however, claimed that doing this eliminated the ability to make predicitions because you could explain anything by making the right assumption about what people value: "They did this because that is what they want to do." I think this misinterprets the sort of predicitions that can be made with economic theory. Economic theory enables us to make predicitions about how groups of people will respond to changes in constraints. Assuming that people value giving money to charity does not prevent me from making predicitions. I predict that, in general, if we lower the cost of giving to charity people will give more to charity. I predict that if we increase the cost of voting, in general, people will vote less. One of the fundamental assumptions in economics is that people like lots of different things and that they have tochoose between them. Assuming that one of those things is a nice house and another is feeding the poor presents no problem.The problem is not assuming that people value things other than money, the problem is using changes in those preferences rather than changes in constraints to explain behavior. For instance, explaining financial crises as a result of greed, as if people have become more greedy, tends not to hold up to scrutiny.

Interestingly enough, Professor Stout later noted that if you want to get people to behave ina pro-social fashion you need to make sure that the benefits of selfish behavior are not too great.