Saturday, May 11, 2002

Maureen Culhane's report on global aging is now available on-line. A must read for retirement system discussions, not to mention the best economic reason for the UK to stay out of the EU.

I have also recently downloaded a study from the NBER on savings habits. Early reading suggests that income has no effect on propensity to save. Distribution of savings is as dramatic in the bottom income decile as the top. Wow.
KrugmanWatch is up at Live from the WTC. Complete with long rant about the power market.

Friday, May 10, 2002

Legal Arbitrage?

Instapundit points to this commentary about the Enron documents.

But FERC also knows that Enron's supposedly evil "market manipulation" mostly involved the pursuit of legal "arbitrage" opportunities (in which traders exploit short-term price differences to buy low in one market and sell high in another). Such arbitrage is widespread and considered beneficial in commodity markets everywhere - including energy markets in other states.

...But because experts parsing the details in court will show these practices are largely legal and common, they'll never work as a basis for getting California's money back.

Of course, Krugman can reprocess the memos into mudballs regardless.

Krugman Insinuates Again

As one might expect, Paul Krugman reacted to the Enron memos by insinuating that they prove that the private sector was guilty and California's energy regulators were innocent in the California energy crisis. The evidence that he extracted from the Enron memos consists of the following:
schemes that had smart-alecky nicknames like Fat Boy, Death Star and Get Shorty.

That's it. Krugman does not need to undertake any analysis. The mere fact that the traders used colorful nicknames to describe trades is all the evidence he requires.

As I said in my post below, you should read the memos. To me, they sound like arbitrage trades. The arbitrage is created by the regulatory structure. In a free market, arbitrage is a good thing. Only in a badly-regulated market can arbitrage make things worse.

It would be really interesting to have the trades carefully spelled out and then analyzed by economists. If I am correct, and they are arbitrage trades, then they implicate the state of California, not the private sector. Before he started writing for the New York Times, I would have trusted Paul Krugman to delve into the issue and reach an objective conclusion. But having watched his column evolve, I cannot make that kind of assumption.

Thursday, May 09, 2002

Another Government-run Market

Brad DeLong reprints this analysis of India's government food program.
These households, in other words, effectively gain nothing from subsidised PDS sales; on the other hand, they bear the burden of high food prices on the market as a result of the FCI's hoarding operations.

You need to read the entire article to grasp the cruelty of the way in which the program's procedures keep food away from the people that it is supposed to help. My guess is that if you were to examine the California energy agency closely, the picture would be equally galling.

Read the Enron Memos

If you read the actual Enron memos, you get a picture not of a dark conspiracy on the part of Enron but of an attempt to respond in rational, economic ways to a Rube-Goldberg energy contraption created by the state of California. My guess is that the media will successfully spin this as misdeeds by Enron. But I do not think you can come away from reading the actual memos with the view that Enron is the villain here.
Simplifying income taxes: pragmatic possibility or pipe dream? Well, we can hope, anyway.

Wednesday, May 08, 2002

S.E.C. Adopts New Rules for Analysts (NYT) Here is a much better rule that would guarantee consumers were fully informed about their stock market analysts:

All stock market analysts must offer their services exclusively through psychic hotlines.

Tuesday, May 07, 2002

We applauded Paul Krugman for returning to economics and explaining the inventory-rebuilding component in the first quarter GDP numbers, and we ignored (sort of) his obvious hopes for a double dip. We applaud him as he deplores huge farm subsidies, and ignore the Begala/Moore-style undercurrents about "Red States". But I have one more criticism to level - shouldn't an economist be discussing the implications of the curiously, persistently strong productivity numbers?
Productivity in the business sector increased at an 8.5 percent annual rate from the fourth quarter of 2001 to the first quarter of 2002, as output increased 6.5 percent and hours of all persons engaged in the sector declined 1.8 percent (seasonally adjusted annual rates). This was the largest increase in business sector output per hour since the second quarter of 1972, when it rose 9.1 percent. Revised data for the fourth quarter of 2001 show that output per hour increased 5.4 percent, as output increased 1.6 percent and hours of all persons fell 3.6 percent (table 1).

Short-term productivity statistics are notoriously polluted and should not be extrapolated, but the increasing productivity story has held now throughout 2001 and into the first quarter of 2002. If you allow yourself to think it might keep up, we have to reevaluate our ideas about sustainable levels of economic growth.

Monday, May 06, 2002

Some Good Comments

Zimran Ahmed's winterspeak has had some good posts recently. On the controversy over ad-skipping, he writes

in the TiVo future, viewers will choose between paid-programming or programming with unskippable ads. Ad supported broadcast TV, a long-time political sacred cow, no longer has any economic rationale (unless viewers keep watching ads).

On spectrum allocation, he writes
strong spectrum property rights are still the answer. If you bought 50Mhz of spectrum, and receiver technology improves so now you only need half that much, you can simply sell off the unneeded remainder. But for this to work you must own the spectrum in perpetuity and be able to use it for anything.

And on the relationship between the copyright regime and the incomes of artists he writes,
Artists are poor because 1) they're common as muck and 2) no one pays much for content. Labels are rich because 1) their distribution channels are scarce and 2) promotion is costly. While web radio and the Internet reduce label's ability to make money, artists are as fungible as they ever were and no law can overcome these basic economics.

On the latter issue, I've written Equilibrium in the Market for Rock 'n' Roll, which made the point at more length.

Sunday, May 05, 2002

The Saudis are running those commercials claiming to be our friend in the war against terrorism. Let them prove it by selling terrorism insurance to U.S. companies. I bet the Saudis would put far more effort into stopping terrorism if their billions were at risk.