Poor countries are cursed by corruption, low human capital and an economy mostly based on natural resources. These three factors have often been treated as exogenous to GDP and in particular to each other. But could they be linked? The correlation is certainly there, what about causation?Iván Aldave and Cecilia García-Peñalosa make the argument that the "blessing" of natural resources gives the
If you ever tried to argue with a biologist about the pros and cons of conservation, of climate change or habitat encroachment, for example, the debate will pretty fast narrow down to whether the future should be discounted or not. For an economist, this is a nonsensical debate, as the present value of anything is infinity if there is no discount rate and a possibly infinite lifetime. But among
NEW DELHI: Questioning clearance by junior Oil Ministry officials to the near four-fold hike in costs to Rs 45,000 crore for gas fields by Mukesh
UMBAI: Power firm NHPC Ltd will kick off a $1.25 billion IPO next week in the first share sale by a state company since the Congress party's
As this recovery begins, all eyes will be on the housing markets as a gauge for just how strong this return to growth will be.
Of particular note is the jumbo mortgage market which is now springing back to life.
A jumbo mortgage is a home loan with a lending amount above the industry-standard definition of conventional conforming loan limits. With some exceptions, this means an amount above $417,000. A loan in excess of $650,000 is typically referred to as a super jumbo mortgage.
Banks have now resumed underwriting wealthy clients in both of these categories. In fact jumbo activity seems to be brewing even with a limited secondary market for these large payback notes.
For instance, Bank of New York Mellon’s wealth management division reports a resurgence in its high-end lending activity. "We’ve seen significant growth," says Erin Gorman, their national director of sales. Through the end of May 2009, BNY Mellon's jumbo lending activities are up 32% by dollar volume compared to that same period in 2008. In the first quarter of 2009, BNY's average loan balance bounced by 23% compared to the first quarter of 2008.
Another example is found over at Coldwell Banker Residential Brokerage. In the Boston market alone 36 properties of $1 million and up went under contract in March. That figure nearly tripled in May, jumping to 105 mega residential deals.
Mellon's Gorman currently is observing that her competitors are indeed returning to the jumbo market as the economy recovers. She notes that during the recession, "we earned a reputation as the go-to player in jumbo mortgages. And that puts us in a strong position as other lenders gingerly move back onto the field."
BNY Mellon (BK) is one of the 10 large banks announcing that they will begin repayment of their TARP bailout monies to the US Treasury.
Last year Wal-mart added close to 30,000 jobs to it's domestic labor force. In 2009 it now predicts it will add another 22,000 positions nationwide. In fact in some hard hit states like California, Florida and Michigan, Wal-Mart plans to add over 1,000 jobs in each.
Wal-Mart is the largest private-sector employer in the US with a labor force of 1.45 million workers. Wal-Mart's strong retail sales outlook for 2009 continues to highlight a significant rebound in from discount and value retailers since the dismal Q4 of last year.
Expect similar hiring metrics from 10 top retailers that have also experienced strong than expected Q1 results.
"We're proud to be able to create quality jobs for thousands of Americans this year," said Eduardo Castro-Wright, vice-chairman in a company statement.
New Wal-mart employees have found jobs this year in a wide swath of disciplines including pharmacists, human resource managers, and customer service associates.
Separately new data from Challenger, Gray & Christmas, shows that corporate layoffs in May have free fallen 55% from their January high. The reported levels are now close to rates that could almost be considered "normal."
On Thursday the government reported that the number of continuing claims for state unemployment benefits has now started to decline. This is one of the last indicators to mark the stabilization of the labor market following a recessionary period. First-time claims also continued to fall, reaching the lowest level since early May.
Now that the recession has ended, the rate at which these labor level indicators continue to fall will be an additional indicator on how strong this new growth cycle will be.
We now have three very reputable markers that signal the recession's end.
1. According to the U.S. Weekly Leading Index published by the Economic Cycle Research Institute (ECRI), that index growth has steadily risen to a 36-week high.
2. You've seen the pointer here for several weeks now that the "lagging peak" in new claims for unemployment is shown to be quite accurate in predicting past business cycle rebounds. With current continuing claims declining again last week, it is almost certain that we've now seen the lagging peak of this recession.
3. The ISM Manufacturing index that we've been following since the beginning of Feb, shows a likely return to GDP growth. The ISM reported that index at 42.8% on Monday. You may want to go back and check our trend-line from our March 2 post remembering that according to the ISM an index reading "in excess of 41.2 percent, over a period of time, generally indicates an expansion of the overall economy."
It is increasingly obvious that the 'green shoots', have grown leaves, and no doubt will blossom this summer. Professor Hirschey got it just right.
Immigration policy is a continuous hot potato, probably because there are winners and losers from any change. Could we then not devise some compensation scheme so as to obtain a Pareto improvement? Clearly, migrants benefits from moving, as they chose to move. In the receiving country, some gain, some lose, but on can assume that on aggregate the country wins, as it lets people in, but not too
I think I downloaded Marc Lavoie's paper, "Neoclassical Empirical Evidence: On Employment and Production Laws as Artefact" from some conference proceedings. It's downloadable from his site, but I'm not sure for which recent conference it was presented.
Lavoie summarizes the orthodox response to the Cambridge Capital Controversy and the counterexamples:
- "Neoclassical authors minimize the capital paradoxes, making an analogy with Giffen goods in microeconomics, which do not question the entire neoclassical edifice;
- They look for the mathematical conditions that would be required to keep production functions as 'well-behaved', or they claim that this is a simple aggregation problem that can be resolved;
- They claim that Walrasian general equilibrium theory is impervious to the critique;
- They claim that they have the faith, or they plead ignorance;
- Empiricism (It works, therefore it exists)."
"I have discussed some of these issues with a few of my neoclassical colleagues - those that I thought would be most open to dialogue. Amazingly, their response has been to fake that they did not understand the implications of the Shaikh or McCombie papers that I emailed them. The most genuine answers have been that without these elasticity estimates they could not say anything anymore. But they would rather continue making policy proposals based on false information than make no proposition at all. In other words, they would rather be precisely wrong than approximately right."
Dynamic Stochastic General Equilibrium (DSGE) models are designed to do policy analysis. They are based on microfoundations and calibrated or estimated to provide quantitative answers to policy scenarios and in particular study environments for which there is no historical precedent. These model are not designed for forecasting, traditional statistical tools, where ad-hoc models with minimal
Some literature has established that the presence of credit constraints can have an impact on the unemployment rate. It can reduce by making it impossible to find credit when unemployed and thus urging unemployed workers to find a job as fast as possible. But it can also increase it, either because structural change in the economy needs investment (and credit) or because search frictions on the
The recent decades have seen a steady decline of the net financial asset position of the United States. As of 2006, the current account deficit of the US amounts to 1.6% of world GDP, US net foreign asset correspond to -5% of world GDP. Mostly everyone sees that as a huge problem and a sign the US is on the decline.Enrique G. Mendoza, Vincenzo Quadrini and José-Víctor Ríos-Rull argue that this is
No doubt thousands of Americans were contacting their mortgage brokers today. For those paying attention, news about the Federal Reserve's decision to cut its key interest rate to nearly zero, had them rushing to refinance to something lower than 5.5 percent. Many reports have folks locking in rates almost a full percentage point lower than yesterday's quotes. Across the country, mortgage brokers are reporting a surge of calls from borrowers seeking to take advantage of the Fed's historic decision. Brokers were routinely quoting mortgage rates of close to 4.5 percent for people with good credit. It was a continuation of the good news since late November for anyone looking to lock in a 30-year, fixed-rate mortgage. In the past 3 weeks alone, mortgage applicatons have surged by the greatest amount in history. "We're going to see just a massive refinancing boom," said Mark Zandi, chief economist at Moody's Economy.com, who estimates that up to 10 million U.S. borrowers will wind up refinancing their existing notes.
Does anyone remember the stock market crash of October 1973? Over the next 15 months world stock markets collapsed. In the UK the FT 30 index fell by 70%. The holidays of 1974 into the new year of 1975 was not merry. President Nixon decided not to light the National Christmas tree!
All the talking heads agreed: the end was near. Oil was about to be rationed, thermostats were turned down in all federal buildings to 68 degrees, and 55 mph speed limits were imposed to save gas. An energy crisis was upon us. And the Department of Energy got a Cabinet level position in the White House.
But what happened next? In January 1975, the FT index jumped 25% and in the next 12 months was up over 100%.
And what are "they" telling us now? "Things are bad right now, but they're going to get a lot worse. Apparently it'll be as bad as the Great Depression."
So why does this post offer a "good news" perspective? Because history continues to tell us that when it comes to economics, "the majority is always wrong."
Remember it has been less than 6 months since all the financial experts were predicting rampant inflation, oil over $200 a barrel, and gold over $2,000 an ounce. Yet now the same experts tell us deflation is the problem, oil and gold have plummeted. And every news outlet has a new story on economic bad news.
The majority was wrong in Jan 1975 -- one of the best buying opportunities ever in the stock market. Now the majority is wrong again.
Sounds like good news for 2009!
The National Association of Realtors (NAR), brought us continued good news in the housing market today. Despite the turmoil in the economy, the overall level of pending home sales has been remarkably stable over the past year, said Lawrence Yun, NAR chief economist. “...access to safe, affordable mortgages will bring more buyers into the market.... NAR’s housing affordability index is likely to remain quite favorable in 2009."
Yes, the title is correct. According to reports out this past week, consumer spending was up over last year for both Black Friday and Cyber Monday.
Market Watch reported that "strong discounts brought U.S. consumers to the stores on 'Black Friday' -- the traditional first day of the holiday shopping season -- with estimated sales rising 3% from last year."
And consumers kept the momentum going on Cyber Monday... according to comScore, "Online shoppers spent $846 million on Dec. 1, a 15% increase over the Monday after Thanksgiving last year." It was the second largest online spending day on record.
Oh yes, and while we were finding great deals online, gas prices continued to fall.
Would you believe that housing prices are on the rise?
way, one in five major metropolitan areas are experiencing a rise in the value of their homes.And the market keeps testing the bottom.
With the election behind us, all industries, including recession-proof sectors have their eyes on the macro market. Despite the continued volatility in the stock market, some positive macro economic market indicators have emerged.
With oil prices continuing to fall, the
The business credit markets continue to thaw. According to Bloomberg, borrowing volumes are up by more than 10 times what they were in early October. In a further indication of a world market economy on the mend -- large international banks like Chase and Citigroup are lending to their counterparts like HSBC Bank of
And the market for commercial paper — the unsecured debt that companies sell for short-term financing — continues to improve. Just a few weeks ago, even the strongest companies like AT&T were having trouble selling paper for longer than overnight. Now, investors are starting to step back in and buy paper with 30-day and 60-day maturities.
And surprisingly in a Reuters report released on 11/14,
October was tough. A recession is already likely. But significant economic engineering on the global market scene has already produced some positive results.
Why is the average unemployment rate so high in Europe? This question has kept economists busy for some time and various explanations has been proposed: the type of shocks Europe faces combined with the type of education, the generosity of unemployment insurance, tax rates, "culture", measurement. All these explanations have some merit, but I like to see the bigger picture, especially as these
There are these times where you need to bribe and you do not know what kind of bribe to use: cash or sex? Luckily, José Rodrigues-Neto has just produces a handy and rigorous guide for your decision making. Clearly, sex as a bribe is less efficient than money, for reasons related to the deadweight loss of Christmas. However, sex may be less detectable. Also, and the author does not take this into
We often consider preferences to be given and unchanging. I reported earlier about risk aversion to be found to be changing according to external circumstances. But this can still be rationalized as invariant preferences if one increases the state space over which preferences are formed to include these circumstances. But could preferences be learned? There is no doubt about this. Look around you
Others have already commented on the three articles on the breakdown of macroeconomics and financial economics in the July 18-24 issue of The Economist.
SIR - You write:"[Macroeconomists'] framework reflected an uneasy truce between the intellectual heirs of Keynes, who accept that economies can fall short of their potential, and purists who hold that supply must always equal demand. The models the epitomise this synthesis ... incorporate imperfections in labour markets ('sticky' wages, for instance, which allow unemployment to rise)..."But the idea that persistent unemployment is the result of wages sticky downward is a pre-Keynesian idea. Keynes explicitly rejected this explanation of the cause of unemployment:"...the Classical Theory has been accustomed to rest the supposedly self-adjusting character of the economic system on an assumed fluidity of money-wages; and, when there is rigidity, to lay on this rigidity the blame of maladjustment... My difference from this theory is primarily a difference of analysis." (John Maynard Keynes, The General Theory of Employment, Interest and Money, "Chapter 19. Changes in Money Wages"Apparently neither saltwater nor freshwater macroeconomists follow Keynes.
They did not hold the 30th anniversary concert at Woodstock. They held it in my backyard.
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| Crowd for Dave Matthews. Dave Did "Watchtower" |
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| Naked Man and Photographer |
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| The man in the purple shirt is Ken Kesey's business partner. |
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| Salesman |
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| What With The Arson, That Didn't Work Out So Well, Did It? |
1.0 Introduction
This example illustrates one aspect of how Sraffa analyzed natural resources. In this case, natural resources consist of land of various qualities or grades. The quantity of each grade is given; more land cannot be produced. Land is not destroyed either. Appropriate production processes yield as much land as a joint output as given as input. So this sort of model does not incorporate a natural resource like oil that is used up in production.
This example demonstrates that owners of less efficient (productive) natural resources can receive a greater rent.
By the way, Sraffa introduces a distinction between basic and non-basic commodities. Lands with positive rent are non-basic, and therefore their rent is a candidate for taxation.
2.0 Technology
This is a simple economy in which only corn is produced. Table 1 shows the available processes that have corn as an output. Each process requires the use of one grade of land, and no more than one process is known for each grade of land. (This is an example of a model of extensive rent.) Suppose this economy has available 150 acres of land of grade I, 162 acres of grade II land, and 210 acres of grade III land.
| Inputs | Process | ||
| Alpha | Beta | Gamma | |
| Labor (Person-Years) | 2/5 | 1 | 2/7 |
| Grade I Land (Acres) | 1 | 0 | 0 |
| Grade II Land (Acres) | 0 | 3/2 | 0 |
| Grade III Land (Acres) | 0 | 0 | 1 |
| Corn (Bushels) | 2/5 | 1/6 | 4/7 |
| Output (Bushels) | 1 | 1 | 1 |
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| Figure 2: Factor Price Curves |
(1/6)(1 + r) + w = 1where a bushel corn is the numeraire. For a wage of 1/2 bushels per person-year, the rate of profits is 200%.
(2/5)(1 + r) + (2/5)w + ρ1 = 1
(1/6)(1 + r) + w + (3/2)ρ2 = 1
ρ1 ρ2 = 0
ρ1, ρ2 ≥ 0The equations specify that no land can have a negative rent and that at least one grade of land must have a rent of zero. The rate of profits is 100%, when the wage is 1/2 bushels per person-year. Land of grade I pays no rent, and the rent on land of grade II is 1/9 bushels per acre.
(2/5)(1 + r) + (2/5)w + ρ1 = 1
(1/6)(1 + r) + w + (3/2)ρ2 = 1
(4/7)(1 + r) + (2/7)w + ρ3 = 1
ρ1 ρ2, ρ3 = 0
ρ1, ρ2, ρ3 ≥ 0The rate of profits is 50%, when the wage is 1/2 bushels per person-year. The rent on land of grade I is 1/5 bushels per acre. The rent on grade II land is 1/6 bushels per acre
Consider the consequences of capital-reversing. I like to say that one is that explaining wages and employment by well-behaved supply and demand functions for labor is of doubtful logic. Here's what some others have had to say:
"the pattern of activities adopted in the face of long-run factor-price changes can be complicated and counterintuitive. Consequently, the long-run demand for factors can be badly behaved functions of factor prices." -- Michael Mandler (1999) Dilemmas in Economic Theory: Persisting Foundational Problems of Microeconomics, Oxford University Press.
"However, as was argued in Section 3 with regard to 'perversely' shaped, that is, upward sloping, factor-demand functions, this possibility would question the validity of the entire economic analysis in terms of demand and supply." -- H. D. Kurz and N. Salvadori (1995) Theory of Production: A Long Period Analysis, Cambridge University Press
"The essential point of the criticism concerns the factor demand curves. The discovery that factor demand curves may be positively sloped in the relevant range, not negatively..." -- Bertram Schefold (1990) "Joint Production, Intertemporal Preferences, and Long-Period Equilibirum," Political Economy: Studies in the Surplus Approach, V. 6, 1990, pp. 162-163.
"there is not necessarily an inverse monotonic relation between the cost-minimizing quantity of an input and its price... Figures 6.17a-6.17c can be interpreted as demand curves for labour... in Figure 6.17b, ...the sectoral demand curve is upward-sloping... I have shown in Figure 6.17c that the aggregate demand curve is not downward-sloping in the presence of reswitching: indeed, like the sectoral demand curve, it is not even monotonic. Reswitching is sufficient, not necessary, for the aggregate demand curve for labour not to be downward-sloping: to see this, consider Figure 6.18..." -- J. E. Woods (1990) The Production of Commodities: An Introduction to Sraffa, Humanities PressIt is a theme of this blog that mainstream economists have yet to integrate this challenge into their theories and teaching.
Some of these strike me as too absurd (e.g., 7, 9) to bother refuting:
(I've miscategorized this post since neoliberalism encompasses more than economics.)-- Philip Mirowski, "Postface", in The Road from Mont Pelerin: The Making of the Neoliberal Thought Collective (edited by Philip Mirowski and Dieter Plehwe), Harvard University Press (2009)
- "...contrary to classical liberal doctrine, [the neoliberal] vision of the good society will triumph only if it becomes reconciled to the fact that the conditions for its existence must be constructed and will not come about 'naturally' in the absence of concerted political effort and organization...
- ...'the market' is posited to be an information processor more powerful than any human brain, but essentialy patterned on brain/computational metaphors... The market always surpasses the state's ability to process information...
- ...for purposes of public understanding and sloganeering, market society must be treated as a 'natural' and inexorable state of humankind...
- A primary ambition of the neoliberal project is to redefine the shape and functions of the state, not to destroy it...
- ...Neoliberals treat... politics as if it were a market and promoting an economic theory of democracy...
- Neoliberals extol freedom as trumping all other virtues, but the definition of freedom is recoded and heavily edited within their framework... Freedom can only be 'negative' for neoliberals (in the sense of Isaiah Berlin)...
- ...capital has a natural right to flow freely across national borders. (The free flow of labor enjoys no similar right.)...
- ...pronounced inequality of economic resources and political rights [is] not ... an unfortunate by-product of capitalism, but as a necessary functional characteristic of their ideal market system...
- Corporations can do no wrong, or at least they are not be blamed if they do...
- The market (suitably reengineered and promoted) can always provide solutions to problems seemingly caused by the market in the first place...
- The neoliberals have struggled from the outset to make their political/economic theories do dual service as a moral code..."
I have never been enamored of Henry George. But for those who like him, the recent History of Economics Society Annual Conference (Denver, CO, 26-29 June 2009) had a session on "Henry George and the Concept of the Commons", with four papers:
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