Sunday, August 01, 2004
Economic Models
Just as Europeans are re-thinking the work-leisure trade off ("Europe's workplace revolution" , this week's Economist), several letters to the editor in today's NY Times rue the fact that Americans work longer hours and have shorter vacations. (And which candidate will these writers support in November?)On a more positive note, we'll always have Europe -- to visit and to dream about, if not to emulate.
The New Yorker's John Cassidy writes about "Winners and Losers ... The truth about free trade." Cassidy starts with Greg Mankiw's troubles in Washington, beginning when he praised the outsourcing of jobs -- and obliquely alluded to the economic importance of creative destruction (although he did not use the phrase). When politicians talk about free trade, it's all about jobs. Period.
Can democracy and free enterprise co-exist? In an election year, one wonders.
How, then, do we get by? We routinely underperform re our potential. But it apparently takes double-digit unemployment rates to concentrate the mind and rethink the European model.
Just when NY Times readers have fallen for it.
Friday, July 30, 2004
Election Forecasts
A wise colleague once remarked that, "multiple regression is an admission of deafeat." Many social scientists are much more optimistic. Among these is Ray Fair, whose "Predictions, Presidential Elections and Other Things" is reviewed in today's WSJ, and who has been honing his presidential prediction models for some time.Getting a favorable major national book review at this time of year is not bad. The review also highlights Fair's model for predicting the likelihood of extra-marital adventures.
While many forecasters' work can get lost in a sea of projections (e.g., quarterly GDP, CPI, etc.), Fair's work stands out because he goes where many fear to tread.
Right now, the Ray Fair prediction for the 2004 election is at odds with the value of election contracts available at the Iowa electronic market. Fair's model says Bush while the candidates' contracts are now dead even.
Looks like another buying opportunity.
Wednesday, July 28, 2004
Blogs and Elections
Much has been written on how the internet will affect commerce, politics and everything else. (This morning's WSJ reviews two new books on politics and the web.) The political party conventions are now being covered by bloggers; ideas and opinions are being formed and shared faster than ever. That's the bad news and the good news.
What difference will it make? Will voter interest and turnout be affected? If so, will the consequences tilt to either side?
Candidates' good hair and sunny disposition matter in the era of high opportunity costs, greater rational ignorance, low voter turnouts -- and paper-thin levels of interest by most non-interest group voters. The proof is the amount of money going into political TV ads.
TiVo and web entertainment are new worries for traditional network TV. Will web-politics similarly impact politics on TV? One can only hope.
Good ideas may, yet, come to dominate good hair.
Tuesday, July 27, 2004
Really Smart Growth
Planners and local government officials have the "industrial clusters" bug and the race is on to somehow create the next Silicon Valley. University officials, likewise, have read all about the role of Stanford human capital in the development of The Valley and are on board too. Michael Porter offers advice to many on how to speed things up.
What gets lost in all of this is the fact that (surprise) no one actually planned The Valley -- and no one is likely to plan the next one.
Pierre Desrochers and Frederic Sautet argue this point in their "Cluster-Based Economic Strategy, Facilitation Policy and the Market Process" In fact, the authors, point out, "... the regional specialization strategy commonly associated with clusters makes regions more likely to experience economic downturns, prevents the spontaneous creation of inter-industry linkages and hampers the creation of new ideas and businesses."
The Really Smart Growth, then, is to completely ignore the fad.
Sunday, July 25, 2004
Housing Bubbles
Google "housing bubble" and you are directed to 279,000 sites. Time being limited, I did not look at all of them but it is safe to say that most discuss the national U.S. housing market. There is no such thing as a single national weather reading for all the obvious reasons.
Also, sunbelt employment and population growth have been outscoring frostbelt employment and population growth for years. Why, then, so many discussions of "the housing bubble". This is not the stock market.
In this morning's NY Times, Gretchen Morgenson cites recent economic research that predicts housing bubble trouble but notes, "To be sure, home values are still hot in many spots. In the most recent 12 months, prices have jumped by more than 15 percent in Hawaii and Nevada, by 14 percent in California, by 11 percent in New Jersey and 10 percent in New York." She contrasts this with recent declines in Vermont, Alaska, North Dakota, South Dakota, Iowa and Nebraska. Within each state, there are probably variances as large as between states.
Another piece on "The Perils of Predicting Financial Bubbles" reminds us that Alan Greenspan called attention to "irrational exuberance" in 1996. Anyone dumping their S&P; 500 Index shares on that warning would still be angry -- unless they had made some very well timed buys and sells in the interim. Robert Schiller is also cited: "He explains that bubbles are created when the prices of assets are fueled by psychological rather than economic considerations." As though there is a simple way to calculate NPVs and IRRs that separates the economic from the psychological aspects of the required net revenue forecasts.
Yes, investors (being just people) will make mistakes, including lousy forecasts. But others will sense opportunities when these become apparent and quickly act to cash in -- and help to keep the rest of us on course.
It is still safe to conclude that most of us should avoid market timing.
Saturday, July 24, 2004
Lifers
Jonathan Clements at the WSJ publishes weekly personal finance information that often makes their most-downloaded list. So it was this week when he called attention to various useful web calculators. The one that has energized a lot of people is livingto100.com. Fill out a few questions and learn your life expectancy. Tweak the questions and see which lifestyle changes will give you even more.
It appears that everyone I know that took the quiz will be around for a long, long time.
Forecasting is a fool's errand but we all do it. Rethink carpe diem. Rethink Social Security's viability. Rethink investment plans. Rethink everything.
Thursday, July 22, 2004
35-Hour Stone Agers
Social engineering is very hard work. This is why it never works. Anyone with a whit of economic sense cringed when France went for the thirty-five hour workweek -- to increase (!) employment. It worked out as predicted and now the social engineers are backing off.
Many French workers and others could have been spared plenty of pain and misery if elites had spent just a little time entertaining a little economic common sense.
Paul H. Rubin looks to evolution to explain why economic common sense is so uncommon. zero-sum thinking, so it seems, worked pretty well all through Pleistocene millenia and is, therefore, still deeply embedded within most of us. Living in relatively small groups, Stone Agers had less reason to specialize and experience the joys of non-zero sum outcomes.
Brink Lindsey chronicles some of the pain that this history causes to this day -- in France as well as here, there, and everywhere.
