Banks. Krugman. The Debt Crisis and the Human Genome « Mandel on Innovation and Growth. My nomination for the most significant economic event of the past decade: The failure of the Human Genome Project to thus far deliver medically significant results. Let me explain my thinking, and why there may be reason to be guardedly optimistic about the future. Right now there are three depressing aspects to the current course of the U.S. economy. First, the growth of healthcare spending, if it continues, will put a stranglehold on employers and taxpayers.
Second, the apparent inability of the private sector to generate well-paying jobs for college grads, if it continues, will put a squeeze on young workers. Third, the apparently inability of the U.S. to export enough to close a huge trade deficit, if it continues, will leave the country exposed to a dollar collapse and a sharp fall in living standards. I could have arranged and described these differently, but that’s the outline of the negative picture. Cancer. What about jobs? This had an unfortunate domino effect. St. Like this: The Euro at Mid-Crisis by Kenneth Rogoff. Exit from comment view mode. Click to hide this space CAMBRIDGE – Now that the European Union and the International Monetary Fund have committed €67.5 billion to rescue Ireland’s troubled banks, is the eurozone’s debt crisis finally nearing a conclusion? Unfortunately, no. In fact, we are probably only at the mid-point of the crisis. To be sure, a huge, sustained burst of growth could still cure all of Europe’s debt problems – as it would anyone’s.
For starters, there are more bailouts to come, with Portugal at the top of the list. This burden includes both public debt (owed by the government) and external dent (owed by the country as a whole to foreigners). Spain is a more difficult case. But bailouts for Portugal and Spain are only the next – and not necessarily final – phase of the crisis. It sometimes seems that the only eurozone leader who is willing to face the likely prospect of future debt restructuring is German Chancellor Angela Merkel. That is nonsense. The Hubris of Economics.
On Tuesday, the 2nd most emailed article on WSJ.com was Crisis Compels Economists To Reach for New Paradigm. It is an intriguing look at the problems of the the field of economics. It went, however, way too easy on both the profession and its practitioners. The article fails to ask some very basic questions about the soft science, and does not discuss the fundamental incompetency of many economists. Given the failures of the profession — failing to anticipate the worst recession in decades, missing the warping effect of the housing boom, not recognizing the credit collapse until too late — a damning indictment of the dismal science might have been more appropriate. Perhaps I can be of assistance. Let’s start with the basics. The humility of science begins with an admission: We know nothing. Science is the ultimate “show me” state. Economics has a somewhat, shall we call it, less rigorous approach. No, Mankind is not a rational, profit maximizing actor. Where was I? Excerpt after the jump.
Economist's View: "What Computer Science Can Teach Economics" Eugene Fama defends the efficient market hypothesis, sort of - The Curious Capitalist - TIME.com. Titan of academic finance Gene Fama writes in his blog: The premise of the Fox book is that our current economic problems are largely due to blind acceptance of the efficient markets hypothesis (EMH), which posits that market prices reflect all available information.
The claim is that the world’s investors and their advisors in the financial industry bought into this model. Because they ceased to investigate the true value of assets, we have been hit with “bubbles” in asset prices. The most recent is the rise and sharp decline in real estate prices which froze financial markets and led to the worst recession since the Great Depression of the 1930s.The book is fun reading, but its main premise is fantasy. I really didn’t think this was the main premise of my book. Yet … I completely agree with Fama that most investing is done by active managers who don’t believe markets are efficient. What Fama might say in response is, “Well, I never asserted that.” Handicapping the 2009 Economics Nobel - Real Time Economics. Economist's View: "Dark Age in Macroeconomics?" This is Nick Rowe (it's in response to Paul Krugman and follows up on one of Nick's previous posts): Dark Age in Macroeconomics?
A History of Taught approach, by Nick Rowe: (Or maybe the title should be: "Notes from the Phelps/Lucas Administration"; or "Notes to supplement our fading memories of the late 1970's".) Is this a Dark Age in macroeconomics? In other words, have we collectively forgotten some (important) stuff that we used to understand? I want to approach this question by looking at what was taught in the past to economics graduate students, so we can compare what is left out now to what was left out then. I have a sample of one: my own lecture notes from grad school. I began my MA at UWO in 1977, and continued into the PhD. Macro 1 (David Laidler). Macro 2 (Michael Parkin). Money 1 (Don Patinkin/Peter Howitt).
Money 2 (Joel Fried). Advanced Macro (Peter Howitt). (I learned some more money/macro in David Laidler's History of Thought class. I make the follow observations: 1. Economist's View: Predicting Crises. David Levine "aggressively argues": our models don't just fail to predict the timing of financial crises - they say that we cannot.
The San Francisco Fed's Bharat Trehan says: simple indicators based on asset market developments can provide early warnings about potentially dangerous financial imbalances. ... [W]e have taken two simple indicators off the shelf and shown that both would have signaled impending trouble prior to the current crisis. See here. We ought to be able to say, at the very least, something like: If you keep eating that junky credit instead of a healthier financial diet, your monetary circulatory system is likely to have severe problems at some point in the future. Many people had a sense things were out of balance and that at some point it would cause us problems, but the indicators most people looked at pointed to a diagnosis involving exchange rate movements and an international unwinding. So we need two things. But that is not enough.
Marginal Revolution: What went wrong in the economics profession? Marginal Revolution: What it means to predict a crisis. Some economists are trying to get macroeconomics off the hook by arguing that by their very nature crises are unpredictable. Thus David Levine aggressively argues that "our models don't just fail to predict the timing of financial crises – they say that we cannot. " There are three problems with this argument. First, it assumes what is it at question – namely whether what Levine calls "our models" are good models.
Perhaps behavioral models could better predict the timing of financial crises. Second, it's not true that "our models" tell us that we can never predict a financial crisis. Third, the word timing is misleading. If you play Russian Roulette with 1 bullet and 100 chambers in your pistol, I can't predict when the crisis will occur. All of this is true even in the context of stock markets.
Economist's View: "Did Economists Ever Get it Right?" Antonio Fatás on the state of macroeconomics: Did Economists Ever Get it Right? , by Antonio Fatás, Commentary, MorningStar (originally): Paul Krugman has written a nice essay on the NY Times about How did economists get it wrong?. Other economists have written on the same topic: Eichengreen, Lane, Thoma, DeLong. My reading of these articles is that there is a good deal of consensus around the following points: 1.
Many (economists and non-economists) had expressed concerns prior to the crisis about economic imbalances such as excessive asset price appreciation or current account imbalances. They pointed out to the need of an adjustment, which could come in the form of a recession. 2. 3. The big gains in housing prices we have seen here and in many other countries have raised concerns about what might happen to economic activity if those price gains are reversed. ... Clearly, our knowledge of what was happening inside the financial system and the associated risk was very limited. 4.
Economist's View: What's Wrong with Macroeconomics? Cato Unbound » Blog Archive » It’s Harder than It Looks. Let me begin with Professor Sumner’s opening assertion that “the sub-prime crisis that began in late 2007 was probably just fluke, and has few important implications for either financial economics or macroeconomics.” I maintain instead that problem loans are indeed the principal cause of our present difficulties. Ashcraft and Schuermann (2008) analyzed a pool of about 4000 mortgages originated in 2006 by the now-bankrupt New Century Financial Corporation.
All the loans in the pool were subprime, meaning one would have significant concerns about the borrowers’ ability to repay on the basis of their credit history. Furthermore, almost all of the loans called for the monthly interest payments to increase between 25 percent and 45 percent within 2-1/2 years, even if there was no change in short-term interest rates. Yet somehow 79 percent (by dollar value) of the MBS tranches created from this pool were rated AAA by both Standard & Poor’s and Moody’s, and 95 percent were rated at least A.
“Why Did Economists Get it So Wrong?” Krugman Was Right, On October 14, the Mo Ibrahim Prize Committee announced, for the second year in a row, that it had not found anyone to whom to award its Prize for Achievement in African Leadership. The Prize is given to a recently-retired Executive Head of State or Government in Africa who satisfies the criteria of having been democratically elected, having left at the end of his or her constitutionally mandated term, and having demonstrated exceptional leadership. The winner receives $5 million paid over ten years, followed by $200,000 annually for life, which makes it the world’s most valuable annually awarded prize The Mo Ibrahim Foundation supports other valuable activities as well, especially the annual rating and ranking of countries in the Index of African Governance, which was also released October 14.
But I am especially intrigued by the Prize. Even such a noble venture as this receives some criticism. I don’t buy these criticisms. What defines good leadership is an interesting question. Economics and Its Discontents. In the aftermath of the worst scare since the 1930s, economists have identified a new culprit to share the blame for the subsequent mess – themselves, or rather those among their tribe with whom they disagree. No longer are greedy Wall Street bankers, feckless regulators and a blasé Federal Reserve Board the only suspects. The economics profession has joined them in the dock.
“How Did Economists Get It So Wrong?” Asked Paul Krugman last week in The New York Times Magazine. “The Financial Crisis and the Systemic Failure of the Economics Profession, “ wrote David Colander, Alan Kirman and several others in Critical Review. “The Other-Worldly Philosophers,” offered the headline of thoughtful examination in The Economist two months ago. On its cover, a textbook – “Modern Economic Theory” – melted into a puddle. Is that really true? The fireworks, as usual, have been provided by Krugman, New York Times columnist, Princeton professor and winner of last year’s economics Nobel Prize. How did economists get it so wrong. A Perspective on Financial Innovation.
Economist's View: Are Macroeconomic Models Useful? There has been no shortage of effort devoted to predicting earthquakes, yet we still can't see them coming far enough in advance to move people to safety. When a big earthquake hits, it is a surprise. We may be able to look at the data after the fact and see that certain stresses were building, so it looks like we should have known an earthquake was going to occur at any moment, but these sorts of retrospective analyses have not allowed us to predict the next one. The exact timing and location is always a surprise. Does that mean that science has failed? Should we criticize the models as useless?
No. However, even though earthquakes cannot be predicted, at least not yet, it would be wrong to conclude that science has nothing to offer. So even if we cannot predict earthquakes, and we can't, the models are still useful for understanding how earthquakes happen. All of this can be applied to macroeconomics. However, that doesn't mean the models themselves were useless. Comment / Analysis - What friends are for. Online financial data APIs and resources. A couple of weeks ago on Twitter, I asked about freely available financial data.
Anyone know where to get stock data in a standard API format (XML, JSON, etc)? Just looking for hi/lo/close data, not real-time. I may or may not get around to doing the project I wanted the data for, but in the meantime, here's a list of the suggested resources that people sent in: - Google Finance API. - Google Finance's CSV output (example) - Google Finance API for gadgets. - Yahoo Finance's CSV output (example) - There's a stock quote example in this IBM article on using YQL, JSONP, and jQuery. - The Stock Quote web service from WebserviceX.net. - Data from Infochimps: AMEX, NASDAQ, NYSE. - Xignite finance APIs. Update: Getting stock information with YQL. The Economic Crisis and the Crisis in Economics. The Economic Crisis The global financial crisis of fall 2008 was unexpected. A few people had been predicting that serious problems were looming, and even fewer had placed bets accordingly, but even they were astounded by what happened in mid-September.
What did happen? There are many layers to unpeel, but let me begin with the three main events that triggered the severe global phase of the crisis. (See for more on what came before, how events unfolded during fall 2008, and where matters now stand). 1. Thus began a financial and economic crisis of the first order, on a magnitude not seen at least since the 1930s and – arguably – with the potential to become bigger than anything seen in the 200 years of modern capitalism. The Crisis in Economics Does this economic crisis constitute or imply a crisis for economics? Let me discuss the “no crisis” view first. An alternative interpretation is that mainstream macroeconomics is in big trouble. I’m not so convinced. Blodget Says Facebook Is Only Worth $9 Billion, Hypothetically Speaking. Putting a value on private companies is hard enough for insiders and venture capitalists who have full access to the company’s financial statements.
When outsiders try to do it, even well-informed ones, it is nothing more than a guessing game. But it is nonetheless perhaps one of Silicon Valley’s favorite parlor activities. Today, Henry Blodget & Co. at Silicon Alley Insider try to peg valuations on 25 private Web companies. Facebook is at the top of the list, but it is valued at $9 billion instead of the $15 billion that Microsoft’s investment put on the company. The same goes for any of the valuations on the SIA 25 list, which puts Wikipedia’s worth at $7 billion, Craigslist’s at $5 billion, Mozilla’s at $4 billion, LinkedIn’s at $1.3 billion, Ning’s at $560 million, RockYou’s at $325 million, and Spot Runner’s at $250 million.
Some of these valuations have more merit than others. But what are you gonna do? Financial site combining several types of information.