Archive for the ‘402 Further Study’ Category

Further Study (335/402): Barro vs. Krugman

April 30, 2009

In case you want to revisit the Barro vs. Krugman debate as a study break, here is a debate between them on the Charlie Rose show.  It is old — 2004 — but they cover the same issues — growth vs. fairness, etc.   The clip is about 20 minutes long: Krugman vs. Barro.

HT to Kiro Yovkov.

Posted at 9:23 am, Eastern

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Further Study (335/402): Friedman in Action

April 24, 2009

Here is a short clip (2.5 minutes) of Phil Donahue sparring with Milton Friedman.  The discussion concerns the virtues of capitalism — not monetary economics — but it still shows Friedman’s legendary debating skills.  Enjoy!  (HT to Ted Matwijec for the clip.)

Posted at 7:48 pm EDT

Further Study (335/402): Macroegonomics

April 17, 2009

Here is link to a superb essay by Virginia Postrel in the current Atlantic Monthly: Macroegonomics.

She argues the  hubris of economists in the 1960s — taming the business cycle was just an engineering problem, add a bit of stimulus here, take a bit off there — led to runaway inflation in the 1970s and the need for a serious negative monetary shock to end it (inflicted by Paul Volker at the Fed).  She goes on to say economists are falling victim to the same hubris — attributing the low inflation, record-long expansions, and mild recessions of 1982-2007 (the so-called “Great Moderation”) — to wise policy.  Well, the evidence suggests policy was wise and did contribute at the margin, but more mundane factors (such as improved inventory controls by firms producing durable goods) were the big drivers.

Ms. Postrel is not an economist, but she is married to one.  I knew her when I worked at the Milken Institute in LA (1993-94).  At the time, she edited Reason — a libertarian magazine on current affairs.  She is one smart cookie.

Posted at 6:09 pm EDT

Further Study (335/402): More on AIG

March 29, 2009

A student, responding to my invitation for AIG analysis from a left-of-center perspective, sent me the following email:

Mr. Vaughan –  I normally don’t touch Daily Kos with a 10-foot pole, but this article was interesting: Daily Kos – AIG. It’s about how the CDS market is larger than the world GDP (and mostly a summary of a few other articles).

The short piece from the Daily Kos includes a link to a longer one from The Rolling Stone. Both articles were interesting and representative of much of the anti-AIG stuff in the print media and blogosphere. I took time to read them and compose a lengthy reply to show why my AIG links might appear biased (i.e., the left-of-center analysis I have read is misleading — not purposely but because reporters lack familiarity with financial markets and training in financial economics).  Here is that reply (with some editing from original email reply to provide more context): mdv-response-to-daily-kos-piece.

If you would like additional background on credit default swaps, here is another good primer: mengle_cds-overview_2007-q4.  Here is a good overview of exactly what happened at AIG: sjostrom_aig-bailout-march-2009.

Note to 335 students: I do not expect you to ready these two articles in detail (they are “further study”).  But I do expect you to flip through to gather additional information to answer the following essay question:

Why did AIG almost go under?  What steps (broadly speaking) has the Fed/Treasury taken to prop up AIG?  What is the economic rationale for those steps?  What is the economic case for paying bonuses to employees AIG-FP in March 2008?

HT to the student who sent me such great teaching vehicles!

Posted at 12:45 am (CDT)

Further Study (335/402): AIG, Credit Crisis, etc.

March 27, 2009

Here is an op-ed on the AIG bonuses by Charles Kruthammer that appeared in the Washington Post two weeks ago: Bonfire of the Trivialities.

Below is a video blog entry from REASON.TV (sponsored by the Reason Foundation, which has a libertarian perspective).  For the record, I think bad government policy played a role, but I don’t think it is the “ueber” explanation.

Posted at 5:50 pm CDT

Vodpod videos no longer available.

Further Study (335/402): Amity Shlaes Redux

March 11, 2009

For those holdovers from fall 104…

Amity Shlaes’s THE FORGOTTEN MAN (assigned to class) remains in the news and controversial.  Arnold Kling offers a good overall assessment of the book (to which I posted a comment).  If interested, click here: Kling on Shlaes.

Here is a podcast interview of Shlaes (by Russ Roberts, who once taught in the Wash U b-school), with lots of related links: Roberts Interviews Shlaes

Posted at 6:37 am (EDT)

Class News (335/402): Errata/Further Study

February 27, 2009

I made three  misstatements last week that need correcting.  Nothing  substantive;  still, it is important to get things right.

  • At the F&S session, I said Bank of United States (BoUS) was the 8th largest U.S. bank at the time of failure.  I meant it was the 28th – still the largest to fail up to that time.
  • At the F&S  session, I said J.P. Morgan was involved in discussions about saving BoUS – which of course is impossible because he died in 1913.  I meant to say representatives of J.P. Morgan and Company (along with the New York Clearinghouse) were involved – as had been the case in 1907.
  • In 402 (pm), I was asked if preferred stock the federal government received for injecting capital into Citi last November were convertible to common stock.  I said “no” – technically true.  But the government also got warrants for common with strike of  $10.61.  Such a warrant is like a call option, conferring the right to buy the stock in question at a specific price, here $10.61.).  Background: Wikipedia – Warrants and  Citi Press Release (11/24/08).

Further Study
An article from Wednesday’s WSJ (A1) on problems running Citi day-to-day caused by government involvement: Citigroup Chafes Under U.S. Overseers.  From today’s online WSJ, story on just-announced plan to give more public funds to Citi: U.S. to Take Big Citi Stake and Overhaul the Board. In this plan, Citi is offering to convert non-convertible preferred to common.  If it goes through, the feds will control 36% of common equity (14.1 percentage points short of effective nationalization).  Finally, an op-ed from Tuesday’s WSJ (A13) by Bill Isaac, who presided over nationalization of Continental Illinois in 1984 as FDIC head: Bank Nationalization Isn’t the Answer.

By the way, 4th quarter 2008 GDP numbers  have been revised – talk about grim (down much more than 3.8%).  Here is WSJ story  (online, today): GDP Shrank 6.2% in 4th Quarter, Deeper Than First Thought.

Just for Fun
Now available on e-bay: Blank Checks from BoUS.

Posted at 11:55 am

Further Study (335/402): Laugh Break

February 26, 2009

In 2006, choice of replacement for Alan Greenspan came down to Glenn Hubbard (Dean of CBS – Columbia Business School) and Ben Bernanke.  When Hubbard lost out, CBS follies made a parody music video — based on the Police’s video, “Every Breath You Take.”   In the parody, the student playing Hubbard is a dead ringer.  Enjoy:

If you missed the original, click here: Police – Every Breath You Take

Hope these provided some relief.

Posted at 1:24 am

Further Study (402): Barro Speaks

February 19, 2009

Tired of hearing me speculatively characterize Barro’s (textbook author) views on current fiscal/monetary policy? Fret now more! You can listen to a podcast interview by a Tax Foundation (TF) economist. Lasts 13 minutes. Barro also spells out what he would do (on top of criticizing current policy).  Here is the link to TF blog hosting podcast: Barro Interview

By the way, my speculative characterization was pretty close (smile).

Posted at 7:54 pm

Further Study (335/402): Miscellaneous Stuff

February 9, 2009

As noted, so much great stuff has been in the press/on-line that it is tempting to bury you.   Alas, you have plenty to do for me already (not to mention your other classes), so I will confine myself to this Further Study (i.e., optional) post.

Ghost of Smoot-Hawley
The stimulus package contains some blatantly protectionist provisions.  President Hoover learned the hard way that enacting such measures in recessions can have disastrous consequences.  Here is an op-ed by Burton Malkiel of Princeton (last Thursday’s WSJ, A13): Congress Wants a Trade War.  By the way, Malkiel wrote the best book on financial markets/investing (where “best” means disciplined by serious academic research) — Amazon link: Random Walk Down Wall Street.

Obama Economic Team
As holdovers from my 104 know, I was not a fan of candidate Obama’s economic policy.  But President Obama’s economic team is first rate.  Larry Summers, his economic czar, was on ABC yesterday: Summers on THIS WEEK.  Back in the 1980s, when the RBC-New Keynesian debate reached fever pitch, the Minneapolis Reserve Bank published a back-and-forth between Summers and (now Nobel Laureate) Ed Prescott.  Here is the pro-RBC view: Prescott_RBC theory.   Here is Summers’s retort: Summers_skeptical-observations-on-rbc.

Christy Romer is President Obama’s chairman of the Council of Economic Advisors.  Here she is on CBS yesterday (via Greg Mankiw’s blog): Romer on FACE THE NATION.  Here is an FRB Minneapolis interview of Romer and her husband (also a New Keynesian macroeconomist): Interview-of-Romers_2008.

Barro Interview
The Atlantic interviewed Bob Barro (author of 402 text and bishop in church of equilibrium macro): ATLANTIC Interview of Barro (2-2009).   Short and juicy stuff.

Looking for Middle Ground…
Between Barros and Krugmans?  Try this post by Jim Hamilton (economist at UCSD: Hamilton on Technological Frictions.

Wonder if Econ 103/104 were a waste?
Here is a another post from Hamilton’s superb blog, using simple demand/supply analysis to show why the proposed $15,000 tax credit for home-buying a home will only modestly boost prices: Tax Credits and Housing Prices.

Enjoy!

Posted at 12:43 pm