Default

Technically the US has defaulted before...on accident, and it wasn't pretty:

Terry Zivney and Richard Marcus describe the default in The Financial Review (sorry, I can’t find an ungated version):

Investors in T-bills maturing April 26, 1979 were told that the U.S. Treasury could not make its payments on maturing securities to individual investors. The Treasury was also late in redeeming T-bills which become due on May 3 and May 10, 1979. The Treasury blamed this delay on an unprecedented volume of participation by small investors, on failure of Congress to act in a timely fashion on the debt ceiling legislation in April, and on an unanticipated failure of word processing equipment used to prepare check schedules.

Obamacare

GOPers are afraid of Obamacare, but this is the scariest graph:

Paul Ryan's "solution" was to refuse to let it grow, as if this could be stopped through sheer force of will.

Shut Down.

Estimates of the consequences of the shut down. Also checkout MacroAdvisors shutdown calculator and run your own estimates.

Germany the Currency Manipulator

Paul Krugman points out that even within the most extreme version of a fixed exchange rate regime - a currency union - one can think about the misalignment of the underlying currencies (even if their are no underlying currencies).

The general point is that if we imagine a euro breakup, I think everyone would agree that the new mark would soar in value, making German manufacturing much less competitive. The German public imagines that it is being cruelly exploited for the benefit of lazy southerners; arguably, what’s really happening is more like China’s purchases of dollars, which are intended not to subsidize America but to boost industry.

Shutdown

What to expect Day 1. 10 ways it could affect you. Why it happened. And the bigger looming problem of the debt ceiling.

The Fed Surprise

As an exercise for the macro student, watch this video starting around minute 30. The video is a brief Q&A with Narayana Kocherlakota, the President of the Minneapolis Federal Reserve Bank.

Then make a prediction for monetary policy going forward.
A) The Fed Tapers or
B) The Fed Waits.

Then read what happened here.

Surprised?

Podcasts For Econ

You can find podcasts for econ here: http://audioecon.com/. I found this NPR episode on welfare for Millionaire farmers interesting.

Monkeys and Fairness

Below is an excellent video on pro-social behavior and fairness among monkeys. The good stuff is at 12:00min and 14:40. Monkeys demonstrate interdependent utility functions.

One Percent

Do you want to join the one percent? Getting a degree from the college of business increases your chances. The NYT breaks down the top one percent by undergraduate degree.

Seminar: Jeff Williamson

The economics department will sponsor its first seminar speaker of the 2011-12 season on Friday, October 7th. Jeff Williamson, Laird Bell Professor emeritus, Harvard University, and Professor of Economics, University of Wisconsin - Madison, will be here to discuss his latest book, "Trade and Poverty: When the Third World Fell Behind." We will meet in room 122 Wimberly Hall at 3:30 pm.

Taxi Cartel

Here is a nice piece on the Milwaukee Taxi Cartel. Who is helped and who is hurt by the fact that no new taxi permits have been issued since 1992?

The city of Milwaukee capped the number of taxi permits at 321 way back in 1992, and consequently the price of a permit on the secondary market has risen to $150,000. That’s excellent news for people who made well-timed investments in Milwaukee taxis, but obviously it’s bad news for would-be taxi entrepreneurs who’d like to get into the market. Fewer permits means fewer jobs for cab drivers, and it means less access to taxis in the city. Dynamics of who uses taxis, what they cost, and where they’re available differ a lot from city to city and I’m not familiar with Milwaukee so I can’t say who in particular is disadvantaged by taxi scarcity but it’s not the sort of thing that helps a city’s quality of life or economy. Apparently the Institute of Justice, a libertarian law firm, thinks they have a chance of winning a legal argument that this is unconstitutional which I actually would find pretty surprising, but there’s no doubt that it’s bad policy. As I’ve noted before, when it comes to taxi cartels the proponents normally don’t even bother to make a public interest argument:

Deficit and Stimulus

Here is a very useful graphic on the budget deficit and its history. And here is a useful collection of papers on the effectiveness of the previous stimulus.

How to Study

Welcome to the Fall 2011 semester. Want to know how to do a better job of studying this semester? Check out this quick series of videos from a cognitive psychologist.

Reasoning in Economics

Here is a discussion about behavioral econ, psych, and inductive versus deductive reasoning. It is wonderful throughout.

Gold Bugs

A gold standard. Thats what Ron Paul wants. And thats why he is a nutter. A writer tries to explain the depths of Ron Paul's question to Bernanke.

Bernanke says: My definition of the dollar is what it can buy. Consumers don't want to buy gold; they want to buy food, and gasoline, and clothes and all the other things that are in the consumer basket. It is the buying power of the dollar in terms of those goods and services that is what is important, and that's what I call price stability.

The writer says: Compare that to a gold standard. Let's say at the beginning of the year, the price of gold is $1,000 per ounce. That's the same as saying that a dollar is worth one one-thousandth (1/1000) of an ounce of gold. At year's end, you can still buy the same amount of gold with your dollar, unless the definition has been changed by policymakers. It is possible, however, that you may be able to buy additional or fewer goods and services with that dollar, depending on how other factors in the economy have changed.

So Bernanke's definition of a dollar is constantly moving, while Paul's would be static. Which framework is better is a far more complicated and controversial question. We'll leave that for another time, but both methodologies have pros and cons.

That dude is either intentionally misleading people or is an idiot. Just because the state says 1 dollar is worth 1/1000 an oz does not make it true, nor does it make it fixed (other than in some nominal meaningless way). For proof look at every fixed exchange rate ever...just because the govt declared their currency to equal something, doesn't mean the market agrees. A gold standard is no different. Its just a fixed exchange rate, that may equal the market rate (ie the relative supplies) or it may not.

The fundamental difference between a gold standard and a fiat standard is who controls the supply of money. In a fiat world, the Fed does. In a gold standard, miners do. Who do think is better suited to run our economic lives?

History

Krugman makes an important point in response to Pence and Ryan calling for a discussion of the gold standard.

In other news, Republicans have demanded that doctors consider reintroducing the practice of treating illness by bleeding their patients.

I love the sarcasm. But my issue with Krugman occurs further up in the entry when he says:

There’s a widespread impression that Keynesian fiscal policy has failed. I would argue that this impression is wrong — that the truth is that it was never tried.

Yeah Paul that is exactly what the monetarists said after the experiment in the 80s. And I'm sure you'd skewer them for such a weaselly response. The truth is dogmatic adherents to some ideology will always claim we just didn't quite try hard enough to follow it.

Worldbank Data Visualizer

Another Data visualizer.

Immigration

A more nuanced view of immigration than the one painted by a simple solow model.

QE2 in Cartoon

Decriminalizing Drugs

Portugal provides a good case study. Some predictable conclusions from a recent study:

In the Portuguese case, the statistical indicators and key informant interviews that we have reviewed suggest that since decriminalization in July 2001, the following changes have occurred:

* small increases in reported illicit drug use amongst adults;
* reduced illicit drug use among problematic drug users and adolescents, at least since 2003;
* reduced burden of drug offenders on the criminal justice system;
* increased uptake of drug treatment;
* reduction in opiate-related deaths and infectious diseases;
* increases in the amounts of drugs seized by the authorities;
* reductions in the retail prices of drugs.