Thursday, October 23, 2008

How it all started (Part 1)

Summary for class (click the picture for larger view)

To the students: do not take this at face value. Many above has been simplified. In fact I based it on an article from The Economist. So treat this just as a rough summary, we'll discuss more in class. I'll post some more (hopefully) on the more recent development.

Fake LPEM Site

I am so proud to find that someone out there loves us that much.

Hugo, howzit goin'?

Hugo Chávez' Venezuela, in the midst of falling oil price.

"We're in the same situation of people who have lost a limb but can still feel it," said Ricardo Hausmann, a Venezuelan economist who teaches at Harvard. "I don't know how long it will take for Chávez to realize he's lost a limb."

What to confiscate now, Hugo?

From the New York Times.

Wednesday, October 22, 2008

Capitalism is Dead for Sale

This reminds me of the triumph of Che Guevara t-shirts thanks to capitalism.

HT: The Austrian Economist and The Economist

Monday, October 13, 2008

Krugman the Nobelist

According to Krugman, something funny happened to him this morning. And that is that he got the Nobel. As usual, Tyler Cowen is quick to give everything you want to know about the latest econ Nobel laureate. So there's probably no need to say anything else.

I just want to reflect how I got to know Krugman's line of works...

I learned about Krugman first from classes taught by Faisal Basri (international trade) and Mari Pangestu (intermediate trade theory). I then wrote my assignment essay on Krugman's model of increasing returns to scale, of which I publish one paper in a student economic journal. Along the way, when I was his TA, Sjahrir gave me a couple of books written by Krugman. Then I noticed Krugman became NY Times columnist and wrote not only economic op-ed but also political analysis ... the latter many times confuses me... As Frankel (or was it Rogoff) said to him in one of those debates, Krugman is a top notch economist but when it comes to political analysis, "you're just less impressive"... My error: this last story is of Stiglitz. Apologies to Krugman.

The wisest editorial so far

The world economy is plainly in a poor state, but it could get a lot worse. This is a time to put dogma and politics to one side and concentrate on pragmatic answers. That means more government intervention and co-operation in the short term than taxpayers, politicians or indeed free-market newspapers would normally like.

That's The Economist, this week's issue.

Saturday, October 11, 2008

Relevant sources now?

"I'm trying to make sense of all this financial fiasco from economics perspectives. I read blogs. But now there are way too many people talking about anything out there. Suggestion?"

"Don't read them all. Just check regularly those of Mankiw, Krugman, Arnold Kling (of EconLog -- in the meantime, just skip Bryan Caplan), Econbrowser (both Hamilton and Chinn)"

"What about magazines, newspapers?"

"New York Times. Don't miss Leonhardt. And of course The Economist".

"I'm not a professional economist. But if I were to read academic papers, what do you suggest?

"Ben Bernanke's papers in early 80s"


"Bernanke's Essays on the Great Depression"

"As for Indonesian context?"

"The two Basris: Chatib and Faisal"

Thursday, October 09, 2008

The blame-game (3)

This crisis is so huge and complex that I don't think you can fairly cite anything as the main cause.  But it is certain that the way we account for securities has contributed, by turning illiquidity in various banks into insolvency.  Moreover, while deregulation played a role, so has regulation.  One of the reasons that severe markdowns are such a problem for banks is that the thin balance sheet triggers a ratings downgrade.  At that point, many large institutions are legally prohibited from investing in them; others are forbidden by charter.  The change in the government sanctioned rating kicks in government rules which ensure that bankruptcy rapidly follows a writedown.  Did I mention that financial firms are not allowed to restructure in bankruptcy?  They have to liquidate.

That's Megan McArdle.

Money has its own entropy, don't we forget

In a meeting yesterday, following the Jakarta's stock exchange suspension and all, a colleague read out an SMS he just received from a US-based investor: Now your country along with others are competing with us, the new emerging country United States of America in attracting money, FDI that is. And so the room was filled with sighs. But no one has money, said everybody.

Which is not quite true.

China does. And so does private sector.

Wednesday, October 08, 2008

What's all this mean?

It mean can mean China is taking over the World Superpower.

That is Arvind Subramanian.

HT: Dani Rodrik.

Seriously, I thought Cochrane was kidding

When he said the revised Paulson Plan is a "pinata full of ridiculousness". So I checked what he referred to with "bicycle commuters" thing in the now big fat 400+ page-long document. Here it is:

Title II. Sect. 211. Transportation fringe benefits to bicycle commuters.

[With]: "(i) QUALIFIED BICYCLE COMMUTING REIMBURSEMENT.—The term 'qualified bicycle commuting reimbursement' means, with respect to any calendar year, any employer reimbursement during the 15-month period beginning with the first day of such calendar year for reasonable expenses incurred by the employee during such calendar year for the purchase of a bicycle and bicycle improvements, repair, and storage, if such bicycle is regularly used for travel between the employee's residence and place of employment.... [and some more down the document]

What are we really talking about here?

Update: Winterspeak also thinks its awful.

Monday, October 06, 2008

The blame-game (2)

We also hear that it is the free market that is to blame. But the facts show that it was the government that pressured financial institutions in general to lend to subprime borrowers, with such things as the Community Reinvestment Act and, later, threats of legal action by then Attorney General Janet Reno if the feds did not like the statistics on who was getting loans and who wasn't.
That's Thomas Sowell

Uh, don't miss Steve Horwitz letter to the leftists.

The blame-game (1)

To blame laissez faire for today's economic crisis is akin to blaming the human body's natural and normal functioning for the illness suffered by someone who's overdosing on heroin.
That is Don Boudreaux.

Update: Also from the same person:
Saying that "greed" caused today's problems is like saying that gravity caused the death of someone pushed from the top floor of the Empire State building.

Saturday, October 04, 2008

How about here?

(click graph to enlarge)

Would be interesting to see what we have here as the election is coming too. From what I gather so far, Wiranto's economic program promise (as campaigned in ads) is terrible, PKS' is rather mixed confusing. Others, same ol' song. Maybe.

What they say about the financial meltdown

Of course I'm stealing these from Mankiw. I put them down here for my future reading. The order follows appearance in Mankiw's blog.

Of course other blogs have important notes, too. Don't miss Becker-Posner, Jim Hamilton, Arnold Kling, and Krugman, to name a view. And here's good summary as of yesterday by Alex Tabarrok.

Oh, and of course, Rizal's live reporting for Cafe Salemba!

Ah, I wish I were assigned macro this semester, in which case I would've read them all right away :-)

The most important concepts in economics

Met with an old friend. His background is engineering and now he is an avid journalist who is thinking to start covering economic news. Damn they're interesting, he said about economic issues. Then we talked about economic news coverage in Indonesian media. The best econ journalists, the most common fallacies and so forth...

Then he asked my opinion of what constitutes the most important concept in economics. Frankly, that's a tough question. Usually, if I only had one shot, then it is "choice". But that would be unwise not to elaborate that vague concept to the friend. It's relation to opportunity cost being the prime implication, for example. So I said, I would put down a list...

Here's what I am thinking:

  1. Opportunity costs
  2. Comparative advantage
  3. Efficiency
  4. Externality
  5. Property rights
  6. Demand
  7. Supply
  8. Growth
  9. Inflation
  10. Interest rate

I so believe that a fair level of understanding the above ten basic concepts would do so much good to economic journalism -- and probably to op-ed economists, too. (My colleagues and I have mentioned some of them sporadically in Cafe Salemba).

Econ Nobel "Nominees", 2008

From Thomson Reuters:
Hansen, Sargent, Sims (dynamic econometrics)
Feldstein (public econ)
Alchian, Demsetz (theory of the firm)
and other usual suspects (Fama, Bhagwati, Grossman, etc)

My fave: Alchian and Demsetz

HT: Mankiw

Some Nobel laureates are just unbelievable lately

Stiglitz got an F. And McFadden, oh my goodness.

HT: Cafe Hayek and EconLog