Friday 21 September 2018

F. A. Hayek: Economics, Political Economy and Social Philosophy

From the Cato Institute comes this audio of an interview of Peter J. Boettke by Caleb O. Brown about Boettke's new book on F. A. Hayek.
The project of F. A. Hayek had its historical context, and it’s worth exploring. Peter J. Boettke is author of F.A. Hayek: Economics, Political Economy and Social Philosophy.

Wednesday 19 September 2018

Series of Unsurprising Results in Economics (SURE)

If you, or your students, are looking for somewhere to publish your unsurprising results think about the new journal Series of Unsurprising Results in Economics (SURE).

SURE is an e-journal of high-quality research with “unsurprising”/confirmatory results and as such aims to mitigate the publication bias towards provocative and statistically significant findings.
Aim and Scope
The Series of Unsurprising Results in Economics (SURE) is an e-journal of high-quality research with “unsurprising” findings.

We publish scientifically important and carefully-executed studies with statistically insignificant or otherwise unsurprising results. Studies from all fields of Economics will be considered. SURE is an open-access journal and there are no submission charges.

SURE benefits readers by:
  • Mitigating the publication bias and thus complementing other journals in an effort to provide a complete account of the state of affairs;
  • Serving as a repository of potential (and tentative) “dead ends” in Economics research.
SURE benefits writers by:
  • Providing an outlet for interesting, high-quality, but “risky” (in terms of uncertain results) research projects;
  • Decreasing incentives to data-mine, change theories and hypotheses ex post or exclusively focus on provocative topics.
The editor is Dr Andrea K. Menclova, Department of Economics and Finance, University of Canterbury

To learn more, please visit:

Tuesday 18 September 2018

The employment effects of minimum wages

There is a new NBER working paper out on The Econometrics and Economics of the Employment Effects of Minimum Wages: Getting from Known Unknowns to Known Knowns by David Neumark.

The abstract reads:
I discuss the econometrics and the economics of past research on the effects of minimum wages on employment in the United States. My intent is to try to identify key questions raised in the recent literature, and some from the earlier literature, that I think hold the most promise for understanding the conflicting evidence and arriving at a more definitive answer about the employment effects of minimum wages. My secondary goal is to discuss how we can narrow the range of uncertainty about the likely effects of the large minimum wage increases becoming more prevalent in the United States. I discuss some insights from both theory and past evidence that may be informative about the effects of high minimum wages, although one might argue that we first need to do more to settle the question of the effects of past, smaller increases on which we have more evidence (hence my first goal). But I also try to emphasize what research can be done now and in the near future to provide useful evidence to policymakers on the results of the coming high minimum wage experiment, whether in the United States or in other countries.

Discriminating firms suffer

A new working paper looks at the effects of the forced removal of Jewish managers affected the performance of firms in Nazi Germany. The is "Discrimination, Managers, and Firm Performance: Evidence from “Aryanizations” in Nazi Germany" and is by Kilian Huber (University of Chicago), Volker Lindenthal (University of Freiburg) and Fabian Waldinger (London School of Economics).

The paper shows, what you may expect, in that firms which discriminated against Jewish managers, suffered significant loses in performance.
We study whether antisemitic discrimination in Nazi Germany had economic effects. Specifically, we investigate how the forced removal of Jewish managers affected large German firms. We collect new data from historical sources on the characteristics of senior managers, stock prices, dividends, and returns on assets for firms listed on the Berlin Stock Exchange. After the removal of the Jewish managers, the senior managers at affected firms had fewer university degrees, less experience, and fewer connections to other firms. The loss of Jewish managers significantly and persistently reduced the stock prices of affected firms for at least 10 years after the Nazis came to power. We find particularly strong reductions for firms where the removal of the Jewish managers led to large decreases in managerial connections to other frms and in the number of university-educated managers. Dividend payments and returns on assets also declined. A back-of-the-envelope calculation suggests that the aggregate market valuation of firms listed in Berlin fell by 1.78 percent of German GNP. These findings imply that discrimination can lead to significant economic losses and that individual managers can be key to the success of firms.
So a non-discriminating firm (assuming there were some) would have a competitive advantage.

Monday 17 September 2018

Pierre Lemieux on Peter Navarro's conversion

In the latest issue of Regulation, Pierre Lemieux writes on Peter Navarro's Conversion.
Navarro is an economist and director of the Office of Trade and Manufacturing Policy (OTMP), a White House agency created by President Trump. He is one of the rare economists to occupy a high-level advisory role in the White House. A Harvard University Ph.D., he is a stiff protectionist, which is rare among economists
Rare is something of an understatement!

Lemieux writes that
Navarro makes five distinct arguments against open trade with China and other countries. They can be summarized as follows:
  • The impossible-competition argument: We cannot compete against a dirigiste and even totalitarian country like China. Trying to do so generates negative externalities.
  • The fairness argument: “Unfair” trade is not free trade and is destroying the American economy.
  • The trade deficit argument: The U.S. trade deficit is a serious problem that reduces gross domestic product and indicates unfair trade.
  • The retaliation argument: Retaliatory protectionist measures are justified against protectionist countries; such retaliators are the real free-traders.
  • The national security argument: Protectionism is required for reasons of national security.
Lemieux then examines each of these arguments and show what is wrong with them.

Lemieux concludes by saying,
Writing for Foreign Policy in March 2017, journalist Melissa Chan depicts Navarro as motivated by his love of media attention and his longing for political fame. He ran for public office several times, always unsuccessfully, and “morphed from registered Republican, to Independent, to Democrat, and back to Republican.” According to Chan, he is derided by well-regarded China analysts. Disregarding psychological and political speculations, one thing is sure: his arguments are not based on economic analysis.

To summarize my arguments, economics strongly suggests that the best trade policy is not to have one, to leave citizens alone to import or export as they wish. That’s true whether the country’s trading partners are free-traders or dirigistes like China. Free enterprise and economic freedom are not only efficient, they are what fairness is or should be about. There is no reason to be concerned with the trade deficit, except to the extent that it is caused by federal profligacy, in which case the solution is to solve the root cause of the problem. Retaliation only compounds other countries’ protectionism. National security is an easy protectionist excuse. Building a war economy in peace time is not acceptable in a free society.

The maintenance of economic freedom at home—which includes the freedom to import what one wants if one finds the terms agreeable—is the only individualist, coherent, and realistic policy. The young Peter Navarro seemed to understand that. Sadly, today’s Navarro does not.
Trump's trade policies have done the almost impossible, they have united economists across the entire political spectrum Unfortunately for Trump, they are united against him and the policies that Navarro has been advocating.

Things are not going well in Venezuela

Joshua Curzon at the Adam Smith Institute blog writes,
Hyperinflation in Venezuela has reached astonishing levels, making life extraordinarily difficult for ordinary people and causing immense economic damage. Inflation is currently running at some 200,000 per cent and is projected by the IMF to reach 1 million percent by the end of the year.
and he adds,
Using the salary of a full college professor as a benchmark, in the 1980s it took around 15 minutes of earnings to pay for one kilo of beef. In July 2017, this professor needed to work for 18 hours to pay for the same quantity. In mid-2018 he must work longer still, in the unlikely event beef can be found.

Prices are increasing at an ever faster rate. A large coffee with milk cost at least Bs.S.80 (Bs. 8,000,000) in Caracas on the 11th of September 2018, 78% more than the price of week before, and double what it cost 15 days ago and 220% more than five weeks ago.
As in all hyperinflations, the problems is that the government is printing too much money. Way too much!!
Venezuela’s monetary base – the amount of money printed by the government – increased by an extraordinary 30% in one week alone at the end of August. The move by the regime to remove 5 zeros from the currency and place greater emphasis on its Petro cryptocurrency (since revealed by a Reuters investigation to be largely imaginary) seems to have been a smokescreen for even greater money-printing.

In fact, it seems that physically printing money is beyond the means of the regime. As Venezuela’s banknotes are printed abroad, they have to be imported at significant cost to the government, which has led to severe shortages of physical cash. Since 2014, the number of active ATMS has plummeted to around 9,000, while card readers have multiplied.
But why print this amount of money, given you know what will happen?
The regime is printing money because it has little other means of staying afloat. It has largely destroyed the private sector through nationalisation and price control. Oil output is at its lowest level in more than 50 years and foreign reserves are at the same level as 1974 and plummeting downwards.
Hyperinflation is just another sign, if you needed one, that the regime's economic policies are just not working. You have to wonder just how long this can go on. Hopefully not too long.

Thursday 13 September 2018

Stalin: Waiting for Hitler, 1929-1941

Stephen Kotkin talks about his new book Stalin: Waiting for Hitler, 1929-1941.
In 1941, history’s largest, most horrific war ever broke out, between the Soviet Union and Nazi Germany. Some 55 million people were killed worldwide in WWII, half in the Soviet Union. Who was Joseph Stalin? Who was Adolf Hitler? Why did they clash? This lecture, based upon a book of the same name, uses a vast array of once secret documents to trace the rise of Soviet Communism and its deadly rivalry with Nazism. It analyzes why Great Powers go to war against each other, delivering lessons for today.

Saturday 8 September 2018

Problems with the "Living Standards Framework"

In the latest issue of Insights from the New Zealand Initiative Matt Burgess writes on the problems he's been having with the "new Living Standards Framework upgrade for Siri, based on work by the experts in the New Zealand Treasury". He writes,
In fact, the new Siri was quite limited. Throughout its years of development, managers had asked that the geniuses writing the code include some way to understand trade-offs between the five living standards objectives. In the end it was decided that “opportunity cost” was simply an intellectual concept, had no practical use, and attempting to include it could break the whole application.

And anyway, hardly anybody in the building had even heard of opportunity cost – how important could it be? – and so the application shipped without it.
This gets at one of the two basic questions about Treasury's "Living Standards Framework" I've had for some time now. Just how do they plan to trade-off one dimension in the framework against another? The second question is, Given that all the dimensions seem positively correlated with economic growth, what the point? Why not just concentrate on economic growth?

Maybe future upgrades to Siri will come with answers to these questions. We can hope.

Annotation in the JEL

The Journal of Economic Literature, a journal of the American Economic Association, sets out to fulfil the following policy:
Our policy is to annotate all English-language books on economics and related subjects that are sent to us. A very small number of foreign-language books are called to our attention and annotated by our consulting editors or others. Our staff does not monitor and order books published; therefore, if an annotation of a book does not appear six months after the publication date, please write to us or the publisher concerning the book.
In Vol. 56 No. 3 September 2018 it annotated one of the two greatest books ever written:

Now go and buy a copy, many copies!!

Monday 3 September 2018

You know your country is in trouble when .............

When people abandon a country in droves, it is rarely a sign of a healthy economy. 2.3 million Venezuelans (7% of the population) have fled poverty and economic despair, and another 2 million are predicted to leave over the next year and a half. For scale, imagine if half of London’s population left the UK, and the other half were about to leave. And we may be underestimating the crisis, since the situation is rapidly becoming nightmarish.

Hyperinflation has risen above 61,000% and is predicted by the IMF to reach 1,000,000% by the end of the year. When inflation runs this high, the lag between tax assessments and payments means that inflation wipes out the real value of taxes. This forces the government to print yet more money in a hyperinflationary death spiral. The recent botched operation to remove five zeros from banknotes has only caused further panic and confusion among the population.
This is from Jamie Nugent and Joshua Curzon at the Adam Smith Institute blog in a posting on Venezuela Campaign: A Country in a Death Spiral.

The only real question is how long will be until Venezuela hits rock bottom and just how bad will things be for the people when it does? Recovery will be long and hard.

Monica de Bolle on the economic challenges facing Argentina and Venezuela

From David Beckworth’s podcast series, Macro Musings comes this audio of an interview with Monica de Bolle on Argentina and Venezuela.

Monica de Bolle is a senior fellow at the Peterson Institute for International Economics and an associate professor at Johns Hopkins University. Monica is published widely on the subject of Latin American economies, and she joins the show today to explain some of the recent financial and economic developments in Argentina and Venezuela. David and Monica also analyze the political atmosphere and policy environment that led to Argentina’s current economic hardships and discuss where the country might be if they had not pursued such policies.