Wednesday, October 26, 2011

Voting, Externalities and an "Invisible" Hand?

I've been too busy lately. I've found some time to read, but precious little to blog.  So this is about a week overdue. This article (HT to Marginal Revolution) is really a wealth of opportunity. You can connect all kinds of economic concepts to voting. The author makes some excellent arguments for voting and not voting. It is the latter that are most intriguing. In some instances, the author seems to be relying on normative judgments about what is a good policy.  In other instances, the argument of common good runs up against rational self-interest.

Do you agree with the author?

Saturday, October 8, 2011

Dual Mandate

It deals with the dual mandate faced by the Federal Reserve. For those of you who are unfamiliar with the term, the Federal Reserve is obliged by law to consider “maximum employment, stable prices, and moderate long-term interest rates.” The kicker is that first part. Many other central banks around the world are focused on stable prices only. This makes sense if you subscribe to the idea that money is neutral and understand the relationship in the equation of exchange M * V = P * Q  (or P * Y as many prefer).

But the author points out that it complicates monetary policy when fiscal policy is ineffective.  I even wonder if fiscal policy-makers are generally unwilling to face hard choices, hoping that monetary policy can solve the problem alone. If true, the tools in the monetary policy toolbox may not offer the solution that is being sought.  This is not the time to use the old adage, “when all you have is hammer, treat everything like a nail.”

I look forward to your comments.

Tuesday, October 4, 2011

Sunday, October 2, 2011

Productivity, Structural Unemployment & Creative Destruction

As we know, cyclical unemployment can become structural if prolonged. And as labor costs rise, there is an incentive for firms to increase the capital/labor ratio rather than hire workers. This can be part of the process of creative destruction. It's all explained rather well in this blog post at The Wall Street Journal.

What I like about the post is that it is short yet very clear. I would think you might want to use with your students as a discussion starter at the beginning of the period or to summarize a day's activity.

Trade Politics of Middle Earth

This may have been more appropriate as an exam question in an earlier age; nevertheless, it is clever - even with the problems with details. (HT to Marginal Revolution)