Marginal Utility

by Ken Houghton

Thomas Sargent's speech at the AEA this year was All About the Glories of Inflation Targeting.

We will leave aside for the moment whether or not inflation targeting is a good thing for a democratic society. (That I phrase the question in that form tells you the answer to which I'm inclined, I suppose, but I can be convinced.) Instead, N. Gregory Mankiw yesterday asked Whatever Happened to Inflation Targeting? , which we have to concede would be a fair question, given Fed statements.

I leave it to the Thoma/Duy (who have started related discussions here [Duy] and here [Thoma]) and Hamilton/Chinn discussants to try to answer Mankiw's question directly.

Indirectly, though, I followed Mankiw's link to the Cleveland Fed, who post this graphic on Household Inflation Expectations, based on University of Michigan Consumer Survey (gated entry here).

So, if we were asked what has happened, the clear answer from the public would be "nothing." The target may be off, but the expectations appear to have been mostly in the same range since (at least) the end of 2006. It is just that the adjusted TIPS rate is (finally?) approaching those expectations.

Labels: Economics, full employment, Inflation, rational expectations

by Tom Bozzo

Here's a decent, if sometimes spinful ("the Internet is perhaps the biggest enemy"), article on Peak DVD. Here's a telling quote:

Media companies, aware of investor concerns about the future of their cash cow, say the problems are overblown. Their position in part: DVDs will continue as a giant profit center because the Internet — despite the “marketing hocus pocus” of the telecommunications industry, in the words of one Fox executive — will remain too slow for widespread downloading to catch on for the foreseeable future.

Betting on the continued craptacularity of the U.S. Intertubes may have seemed a sure-enough thing while the Bushies have been content to see the Telecommunications Act of 1996 stood on its head, but all things must pass. Relatedly:

“Wal-Mart has indicated it is getting bored with older library titles,” said Stephen Prough, the co-founder of Salem Partners, a small investment bank that specializes in film catalogs. “When there is little to no consumer demand at a $6 price point, you’ve got problems.”

Depends on the meanings of "you" and "problems." The obstacles to serving consumer demand at lower price points (via those Internets) are largely contractual.

Labels: Economics, rational expectations

by Ken Houghton

1. Gushy Personnel Sightings:
   
   1. Flying down, trying to keep eyes open (or possibly close them), but the gentleman next to me is working. On Stata code. That I can almost understand. Gradually realise it was Daniele Paserman.
      
   2. My earlier prediction turns out to be, unintentionally, correct. Walk into Krugman, Blinder, Roubini, and Shiller during the Q&A session, taking a just-opened seat in the back. Find self next to Joseph Stiglitz, and about five feet from Avinash Dixit.
   
   
2. We Don't Need No Stinking Badges - many prominent signs indicate that badges are required, but very rarely does anyone check. I carry mine in my pocket most of the time.
   
3. The Irrational Badge Exception—the Book room. The one place where the participants want as many visitors as possible is restricted.
   
4. The Book Room II: Last-day sales. Andrew (who interned there last summer) picks up multiple CATO books. I get a copy of this for half-price. An electronic publisher is giving away copies of Greg Mankiw's textbook (link h/t DeLong) in electronic form.

All in all, it reminded me of a World Fantasy Convention. But someone really needs to do a study of why the book room—the only exemplar of a free market in the convention—is Members Only.

Labels: Economics, rational expectations, sf

by Ken Houghton

Unlike her other professional organization (which is trying harder), this one fits the First Rule:

Reward Good Behavior.

Labels: Economics, labor unions, rational expectations, writing

by Ken Houghton

1. Barron's, via Felix Salmon:
   

   As a retail-industry laggard with tired locations and mediocre merchandising, Sears figures to suffer mightily if consumers retrench and the economy slows, they insist.

   
   English translation: people know where their stores are, so they won't go there.
   
   This, one presumes, is why the accompanying graphic declares that Sears is "A Screaming Bargain: The implied value of Sears' retail real estate is absurdly low relative to competitors' property."
   
   
2. Because Everyone Cares about the Green, not the Yellow, Jersey:
   

   And for the first time since 1967, the race will start with a full road stage, 121 miles from Brest to Plumelec in Brittany, instead of an opening individual time-trial race against the clock that had become traditional. The goal is to give more riders, and not just time-trial experts, the chance to compete for the race lead and its coveted yellow jersey from the very start.

   
   Right; because a pack sprint and a Tom Boonen victory will definitely be something New and Unusual for the first week of the tour.
   
   Continuing with Press Release "Reporting":
   

   After the drug problems of the past two Tours, [there will be] 19 major mountain passes that riders will face, two fewer than in this year's race.

   
   Because mountains are never interesting television, and climbing video (not to mention those 70mph descents) are boring.
   

   "The idea was really to break the classic scenarios," Tour director Christian Prudhomme said. "I am convinced that cycling will rediscover its romanticism that made it a legend."

   
   I'm convinced that the Tour de France just moved to a lower Utility Curve.
   
   
3. Via Felix again, a Milken Institute report indicating that Congestion Pricing Works [PDF] —but so far has required an autarch to be implemented successfully.
   

   In the case of London, Mayor Ken Livingston was determined to introduce congestion charging and made it part of his platform in 2000. The act restoring the mayoral form of government to London after more than two centuries also gave him powers to introduce congestion charging without consent from the national government....
   
   Later on, the public indirectly endorsed the plan, re-electing Livingston a year after congestion pricing was introduced. There were no U-turns at the local
   government level at any point.
   
   Singapore has been run by the People’s Action Party since it first won an election in
   1959. As the ruling party, it has dominated most of the political and economic development of Singapore....Thus, it is not surprising that once the decision was made to charge for road use, there was little dissent. [emphasis mine]

   
   The most encouraging part of that, from NYC's point of view, is bolded above. Londoners voted for a man who promised to deal with congestion by setting a charge for externalities, and he did. And they re-elected him.

Especially in the context of that last, there has been a lot of straw-man idiocy recently alleging the superior "efficiency" of the private sector. But, as has been noted frequently, if you assume a functional democratic republic, there is a clear process in place for improving efficiency, one dependent only on the will of slightly over 50% of the people being realised.* That mechanism in the private sector (Shareholder meetings) is, at best, even less responsive.**



*I will freely stipulate that this is more true of an actual democracy than a democratic republic such as the United States. Overall, though, for a population of 300MM+, both (1) the benefits outweigh the risk and (2) that is the process.

**Oh, right, in Masonomics, you blame the victims.

Labels: bicycle racing, congestion pricing, conspicuous consumption, rational expectations, sports

by Ken Houghton

Bryan Caplan:

This didn't make it into the book, but one of my favorite remedies for voter irrationality has long been to simply clone John Stossel.

As Max often says, "They teach the children of Virginia."

UPDATE: Mark Thoma does some of the heavy lifting. (There was so much to choose from; Mark "has chosen well.")

Labels: Economics, Economists View, rational expectations, Utter Stupidity

by Ken Houghton

The great final result was tarred so much there is little need of feathers.

The best that can be said about yesterday's announcement that pre-race favorite Iban Mayo, who finished 16th, tested positive for EPO on the second rest day is that it was underreported.

This, unfortunately, probably will not lack reporting:

[Werner] Franke said he has documents from last year's Operation Puerto doping investigation in Spain that show Contador, a Spaniard who won the doping-marred Tour on Sunday, had taken HMG-Lepori as a testosterone booster and an asthma product called TGN.

"We can confirm we have received the documents, and they will be incorporated into procedures of the district attorney's office," Christian Brockert, spokesman for Germany's Federal Criminal Police Office, told The Associated Press....

Contador, who rides for the Discovery Channel team, missed the 2006 Tour when his former team, Liberty, was disqualified because he and four other riders -- plus the team director and doctor -- were allegedly linked to Operation Puerto.

It's not necesarily as bad as it looks. But there were teams and riders excluded this year because of Operation Puerto allegations; Contador was not one of them.

Continuing the exploration of Rational Expectations at the link above, Vino's "B" (backup; second) sample also tested positive. Some remain convinced:

Officials with Kazakhstan's cycling federation on Tuesday expressed staunch support for Alexander Vinokourov who was excluded from the Tour de France following a positive test for blood doping.

"We are going to support the position that the results of the A and B samples were a direct result of the violent fall Alexander suffered during the fifth stage of the cycling race," said the executive director of the federation, Aleksandr Antychev.

Again, if there is a 100% chance you will be tested, why not at least use your own blood?

Labels: bicycle racing, rational expectations

by Ken Houghton

Down in this post, I footnoted:

No Mankiwian economist would assume Vinokourov is guilty, since the stage winner is automatically tested and the chance of getting caught would reasonably approximate 100%.

which resulting in some confusion in the comments.

Leave it to the rider to put it directly:

"I have been tested at least 100 times during my career. These test results simply make no sense. Given all the attention paid to doping offenses, you would have to be crazy to do what I have been accused of, and I am not crazy." [emphasis mine]

Precisely. If you're going to dope—with the purpose of winning the stage, and therefore the inevitability that you will be tested—you don't do it in such an obvious way.

Meanwhile, the battle between Leipheimer and Evans for second ends with a eight second difference overall, while Contador stays in first by 23 seconds (meaning there are 31 seconds between first and third place.)

The sprint time bonuses in Paris might make it an interesting final stage yet.

Labels: bicycle racing, rational expectations