Quote of the Day - Winston Churchill on the Moochers

"Here let me remark that the best way to insure against unemployment is to have no unemployment.

"There is another point: unemployables, rich or poor, will have to be toned up. We cannot afford to have idle people. Idlers at the top make idlers at the bottom. No one must stand aside in his working prime to pursue a life of selfish pleasure.

"There are wasters in all classes. Happily they are only a small minority in every class, but anyhow we cannot have a band of drones in our midst, whether they come from the ancient aristocracy or the modern plutocracy, or the ordinary type of pub crawler."

-Winston Churchill


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Strong-Dollar Debate

Frederic Mishkin, John Taylor, Steve Forbes, and James Grant debate the motion "America doesn't need a strong-dollar policy."

The Federal Reserve has two basic methods by which to conduct monetary policy. One is to hold the growth level of the money supply (relatively) fixed, and allow interest rates to adjust to macro conditions. The other is to target a range of inflation and interest rates, and allow the money supply to fluctuate with macro conditions.

I describe this contrast because it is analogous to a very good point that came out of the above debate. If we fix the value of money to some sort of benchmark*, the macroeconomy will then be allowed its full natural range of fluctuations and gyrations, for better or for worse. Better, perhaps, to target various macro indicators**, and make (less harmful) monetary adjustments to maintain target ranges. This is, of course, both what the Fed has done since the mid 1980s and what conservative economist John Taylor has prescribed for twenty years.


*Gold, wheat, oil, gummy bears, and so forth.

**Such as changes in CPI and PPI, various short and long interest rates, change in GDP, unemployment levels, etc.

Links for the week - 22 March 2013

Increasing the Minimum Wage does not lower Employment, Continued

Singapore’s Lessons for an Unequal America

Is capitalism moral?

What Ben Bernanke would say...

"If it were any less diverse it would look like the Senate."

Google and the Lucas Critique

The Economics of Evil Google

Jersey-number assignment equilibrium: When one buyer pays another, and the seller gets nothing

Background

In the National Football League, when a high-profile player is signed to a contract by a new team, he oftentimes wants to keep using the jersey number he wore with his previous team. If the player wearing that number on the new team is suitably low-profile, a deal is sometimes struck, in which the new player buys the right to that number from the existing player for an amount that is relatively insignificant to the high-profile player, but may represent a nontrivial 'bonus' to the marginal player. So long as everyone holds up his end of the bargain, this usually goes off without a hitch.


Problem

But what to do if a team signs two players who each desire the same number? Since the team is prohibited from selling the number to the highest bidder, how can we resolve this dilemma?


Solution

The utility-maximizing approach would be to have each player submit a blind bid for the number, and the number is awarded to the player with the higher bid, who then pays the other player the mean of the two bids.

The player who gets the number gets it for less than he was willing to pay, and the player who doesn't get the number gets more than he was willing to pay. Also, the players are disincentivized to either over- or under-bid, as over-bidders are wasting money and under-bidders are leaving money on the table.


Examples

Smith and Jones are both signed by the same team and both very much want to wear number 19, which is currently unassigned. Smith submits a blind bid for $10,000 and Jones submits a blind bid for $12,000. These amounts are theoretically the value each places on wearing number 19. In this example, Jones gets number 19 and pays Smith $11,000.  Smith, who was willing to pay $10,000 for the right to wear 19 gets $11,000 instead. Jones, who was willing to pay $12,000, gets the number for $11,000. Both players come out ahead.

Let's relax the assumption that each player bids the value he places on wearing 19. If Smith underbids by offering only $7,000, then he gets only $9,500, which is less than the true value he placed on number 19. If, on the other hand, Jones overbids by offering $15,000, then he has to pay $12,500, which is greater than the true value he placed on number 19.


Conclusion

The example shows that, while it is possible that players could strategically over- or under-bid, doing so would run them the risk of dissatisfaction with the outcome. The only way that both players fail to come out ahead is if one or both fail to bid their true value, unless, of course, they both bid the same amount, a situation for which I don't yet have a satisfactory equilibrium, and is an avenue for further research.



UPDATE: Professor Walt Wessels suggests that the best solution uses the same bidding technique, but has the higher bidder get the number and pay the lower bidder the amount of the lower bid.

Quote of the Day: 19th Century Sewers

"Suffering and evil are nature’s admonitions; they cannot be got rid of; and the impatient efforts of benevolence to banish them from the world by legislation, before benevolence has learned their object and their end, have always been more productive of evil than good."

-The Economist, regarding proposals for a sewer in London, 1848


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Senator Portman, Conscience Impostor

Paul Krugman:

Matthew Yglesias beats me to a point I was planning to make. Sen. Rob Portman has made headlines by declaring his support for gay marriage after learning that his own son is gay, and apparently we’re supposed to praise him for his new enlightenment. But while enlightenment is good, wouldn’t it have been a lot more praiseworthy if he had shown some flexibility on the issue before he knew that his own family would benefit? 

I’ve noticed this thing quite a lot in American life lately — this sort of cramped vision of altruism in which it’s considered perfectly acceptable to support only those causes that are directly good for you and yours. We even have a tendency to view it as “inauthentic” when people support policies that aren’t in their self-interest — when a rich man supports higher taxes on the rich, he’s somehow seen as strange, and probably a hypocrite. 

Needless to say, this is all wrong. Political virtue consists in standing for what’s right, even — or indeed especially — when it doesn’t redound to your own benefit. Someone should ask Portman why he didn’t take a stand for, you know, other people’s children.

In the same spirit, from The Onion:

“Let’s hope his kid has a tough time finding affordable health care.”

Links of the Week: 15 March 2013

Author of the spectacularly wrong ‘Dow 36,000′ has new thoughts on the stock market

Michael W. Clune on Masters of the Universe What Was Neoliberalism?

Don't Believe Restauranteurs Who Say They're Going to "Pass On" the Cost of Obamacare

Restaurants Will Pass on Costs by Going Out of Business, or Why Macroeconomics Matters in Real Life

Increasing the Minimum Wage does not lower Employment, Continued

"A note to Dutch innkeepers: If you are going to host a convention of lock pickers, and you promise them free Wi-Fi, it is probably a futile gesture to then require paid access with a password."

"We're not going to give up on destroying the health care system."

Priority Number One: White House Tours

Funny, I don't remember where "White House Tours" fits on Maslow's Hierarchy of Needs, but the implication of all of this pout-rage is that it belongs before security of employment, security of resources, health, respect of others, respect by others, problem-solving, lack of prejudice, and acceptance of facts.


Ezra Klein:

There’s bargaining power for Republicans in upholding the convenient fiction that we can make these cuts and no one will really hurt, because government spending is just wasteful and unnecessary. But the effort here isn’t to make sure no one hurts. It’s to make sure no one with the political capital to do something about it hurts. As such, the minor inconveniences of the politically powerful have become a national crisis, even as some of the politically powerless are losing not just a White House tour, but the very roof over their heads.

...in which he quotes...

Marty Gilens:

When preferences diverge, the views of the affluent make a big difference, while support among the middle class and the poor has almost no relationship to policy outcomes. Policies favored by 20 percent of affluent Americans, for example, have about a one-in-five chance of being adopted, while policies favored by 80 percent of affluent Americans are adopted about half the time. In contrast, the support or opposition of the poor or the middle class has no impact on a policy’s prospects of being adopted.

Ryan Shrugged

Paul Ryan: 'We're not going to give up on destroying the health care system'

Quote of the Day: Lockpickers

"A note to Dutch innkeepers: If you are going to host a convention of lock pickers, and you promise them free Wi-Fi, it is probably a futile gesture to then require paid access with a password."

via

Links of the Week: 8 March 2013

Economists on the Minimum Wage

Obama Will Abolish the Suburbs?

SimCity, Now With Microfoundations

"If you chained a thousand Boskins to a thousand keyboards for a thousand years, eventually one of them would make a correct prediction."

"In the end, Rand Paul did not hate U.S.-citizen-targeted drone strikes as much as Strom Thurmond hated the idea of black people voting."

Bitter Pill: Why Medical Bills Are Killing Us

Banks Borrow Way Too Much

Franklin Roosevelt: The Hard Road to Democracy

Terminology and Meaning (short, hopefully sweet)

It's not always clear what precisely we mean when we use terms in our models. When I think of 'depreciation,' as in the Solow Growth Model, this is mostly what I think of.