Humor of the Day: Dilbert on the Employable Economist's Economic Babble

(hat tip Zero Hedge/Source Dilbert)

This 'dropping-of-economic-terminologies-equals-economics' strip is so relevant...

Ah, the told-to-say economic view economist...

...can also be a fortuitous economist...

Video: Halloween Humor Treat: How to Survive the Zombie Apocalypse with Economics

Professor Anthony Davies at the Learn Liberty explains (hat tip Zero Hedge)

Quote of the Day: Economics isn’t, and will never be, a science

I wonder how Chetty would use those tools to provide compelling answers to the following questions:

1. What is the expected rate of economic growth in conjunction with a 4 percent federal funds rate?

2. What is the effect on inflation of a 300 percent increase in the monetary base?

3. What is the effect -- the multiplier -- of a $1 increase in government spending on output?

4. What is the nonaccelerating inflation rate of unemployment, or the jobless rate that triggers rising prices?

5. What is the wealth effect from a 20 percent increase in the major stock indexes? What about a 100 percent increase?

The answer to all five questions is, it depends. And that’s one of the main reasons that economics isn’t, and will never be, a science.

Isaac Newton, the English physicist, mathematician and philosopher, pretty much explained the fundamental difference between economics and the hard sciences more than 300 years ago. With the physical sciences, we observe what happens in nature. Then we try to quantify it. An apple falls from the tree to the ground with increasing velocity. Water boils at 100 degrees Celsius at sea level. Light travels faster than sound. Each observation yields the same result. It’s why mathematicians end their proofs with QED -- “quod erat demonstrandum,” or that which was to be demonstrated -- and economists don’t.

Or, to paraphrase Newton: The same results are always obtainable under the same conditions. It is the repetitive duplication of a result that defines what are called laws of nature.

A law of nature, when properly measured, will yield duplicate results. A law of economics, even if properly measured, will not.

This is from Bloomberg’s columnist Caroline Baum explaining the difference between science and economics.

Video: How the Dismal Science Got Its Name

In the following video, Marginal Revolution University's Professor Alex Tabarrok explains of the origins of the derogatory allusion of economics as "dismal science"

(hat tip Prof Don Boudreaux)

10 things economists won’t tell you (why you shouldn’t listen to them)

The above can be restated as “10 reasons why you shouldn’t trust economists”

From Marketwatch.com (hat tip Professor Mark Thornton)

1. “We can’t predict the next crisis...”
2. “...but we may help cause it.”
3. “We’re not above a little guesswork.”
4. “Those bold predictions? Blame the testosterone.”
5. “Our measures of prosperity don’t work.”
6. “Ours is a dismal science, but not an exact one.”
7. “We lean to the left.”
8. “We might have an agenda.”
9. “We may as well be speaking Klingon.”
10. “We sell you what you already know.”

Read the explanations here

China 60th Year: Before and Today

On its 60th founding anniversary, Redden of Fast Company provides us with a great graphic illustration of China in 1949 (under Mao Zedong) and the vastly different China today.

Great stuff!

Decoupling in Cyberspace? Internet Traffic Begins to Bypass the US!

The following article by New York Times' John Markoff accounts of a monumental watershed development in the world's cyber traffic. This is a compelling read. Here are some excerpts...

``The era of the American Internet is ending.

``Invented by American computer scientists during the 1970s, the Internet has been embraced around the globe. During the network’s first three decades, most Internet traffic flowed through the United States. In many cases, data sent between two locations within a given country also passed through the United States.

``Engineers who help run the Internet said that it would have been impossible for the United States to maintain its hegemony over the long run because of the very nature of the Internet; it has no central point of control.

``And now, the balance of power is shifting. Data is increasingly flowing around the United States, which may have intelligence — and conceivably military — consequences...

``Ms. Claffy said that the shift away from the United States was not limited to developing countries. The Japanese “are on a rampage to build out across India and China so they have alternative routes and so they don’t have to route through the U.S.”

``Andrew M. Odlyzko, a professor at the University of Minnesota who tracks the growth of the global Internet, added, “We discovered the Internet, but we couldn’t keep it a secret.” While the United States carried 70 percent of the world’s Internet traffic a decade ago, he estimates that portion has fallen to about 25 percent.

``Internet technologists say that the global data network that was once a competitive advantage for the United States is now increasingly outside the control of American companies. They decided not to invest in lower-cost optical fiber lines, which have rapidly become a commodity business...

Important Lessons:

1. Government intrusions have been driving away internet traffic from the US.

2. The snowballing realization of the significance of the Internet to the economic sphere has prompted for diversification of internet providers.

3. Developing countries have been pouring massive capital to the industry more than the US

4. The growing diffusion of world internet usage world wide could be seen in the prism of "one of many indicators that the world is becoming a more level playing field both economically and politically." In short, decoupling!

5. Expanding global competition helps drive the spread of internet usage.

Olympic Medal Count Based on Select Economic Measures

Interesting site from Youcalc.

It shows of the Olympic medal standings seen from the perspective of economics based on either:

1. per Trillion $ GDP
2. Per million inhabitants
3. Per country

Click on the link for updates

Wall Street Journal: Professor Johnson’s Medal Standing Prediction; Philippine Olympic Delegates of ONLY 15 Aspirants Reduces Odds For Gold!

The Wall Street Journal recently published the predictions of economist Daniel Johnson, a professor at Colorado College, on the possible totem pole rankings of medals among the participating countries in the Olympics. Professor Johnson was said to have accurately the outcomes during the past Olympic games (summer and winter) since 2000.

As for the basis of Professor Johnson’s model?

From WSJ, ``five basic pieces of data for each participating nation: GDP per capita, total population, political structure (democratic, authoritarian, military or communist), climate (the number of frost days) and home-nation bias.”

In short, economics, politics and environment were mainly used as gauges to predict outcome.

His prediction for the Beijing games?

Courtesy of Wall Street Journal

What significance from this exercise?

According to Professor Johnson as quoted by WSJ, ``what matters most isn’t comparing the take-home medal count of one nation compared to another but instead measuring it against the nation’s own expected performance, based on his metrics. “This is more of a benchmarking analysis than anything else,” he said, to gauge which nations are over- or under-performing their expected totals. Plus, the overall tally is obviously influenced by the size of each nation and how many athletes they train and send to the games. “One reason Botswana doesn’t win a lot of medals is they don’t send a lot of participants each year,” he said.” (highlight mine)

This blog has predicted that socioeconomic conditions seem ripe for the harvest of the ever elusive first Olympic dream gold medal especially in the realm of boxing as discussed in The Socionomics of the First Philippine Olympic Gold Medal-Thank You Manny Pacquiao.

Unfortunately, we learned that with only ONE boxing representative, Harry Tañamor, the odds for attaining such monumental goal vastly dims-(just learned that the others had lost in the prequalifying rounds prior to the Olympics).

Why?

Aside from economics and the sports itself, the quest for the Olympic gold is also about statistical probabilities as qualified by Professor Johnson.

In short, to INCREASE the odds of realizing such dream we need MORE qualified delegates to represent us. The more the entries, the bigger the chances.

Anyway, good luck to our athletes. We will need alot of them.

Globalization Highlights From Past To Present

The historical contribution of Globalization to world economy, from the Economist,

``GLOBALISATION, as historians of the subject like to point out, has been around for a long time. Industrialisation and technological changes—such as the invention of the steam ship, which produced cheaper means of migrating and trading between continents—spurred one period of globalisation in the 19th century. In similar fashion new inventions—jet aircraft, the internet—helped to encourage later periods of it. In a new World Trade Report published this week, the WTO compared three broad periods, looking at global growth in GDP, in population and in the trade of goods. Migration rates are shown only for four countries of the “New” world.

courtesy of the Economist

Present Trends as Indicated by the WTO 2008 World Trade Report

Accelerating world economic growth…

Rising Per Capita…

And broad based Poverty Alleviation…

This from WTO (highlight mine)…

“International trade is integral to the process of globalization. Over many years, governments in most countries have increasingly opened their economies to international trade, whether through the multilateral trading system, increased regional cooperation or as part of domestic reform programmes. Trade and globalization more generally have brought enormous benefits to many countries and citizens. Trade has allowed nations to benefit from specialization and economies to produce at a more efficient scale. It has raised productivity, supported the spread of knowledge and new technologies, and enriched the range of choices available to consumers. But deeper integration into the world economy has not always proved popular, nor have the benefits of trade and globalization necessarily reached all sections of society.”

Unfortunately globalization trends, despite its tremendous advantages, are highly unappreciated or unpopular simply because it is imperfect. But much of these has been borne out of the market distorting policies.

The message is the world needs more trade than relying too much from government.

Noteworthy Insights on the Rice Crisis

Some important insights on the Rice Crisis…

All highlights mine

From Tyler Cowen published at the New York Times…

“Restrictions on the rice trade run the risk of making shortages and high prices permanent. Export restrictions treat rice trade and production as a zero- or negative-sum game where one country’s gain comes at the expense of another. That’s hardly the best way to move forward in a rapidly growing world economy.

“This lack of support for trade reflects a broader and disturbing trend. An increasing percentage of the world’s production, including that for agriculture, comes from poor countries. Over all, that’s good for rich countries, which can focus on creating other goods and services, and for the poor countries, which are producing more wealth. But it can slow the speed of adjustment to changing global conditions.

“For example, if demand for rice rises, Vietnamese farmers — who remain shackled by many longstanding regulations of communism — aren’t always able to respond quickly. They don’t even have complete freedom to ship and trade rice within their own country.

“Poorer countries also tend to be the most protectionist. To make matters worse, about half of the global rice trade is run by politicized state trading boards.

“The reality is that many of today’s commodity shortages, including that for oil, occur because ever more production and trade take place in relatively inefficient and inflexible countries. We’re accustomed to the response times of Silicon Valley, but when it comes to commodities production, many of the relevant institutions abroad have only one foot in the modern age. In other words, the world’s commodities table is very far from flat.

“Many poor countries, including some in Africa, could be growing much more rice than they do now. The major culprits include corruption in the rice supply chain, poorly conceived irrigation systems, terrible or even nonexistent roads, insecure property rights, ill-considered land reforms, and price controls on rice.

“The ability of a country to grow rice depends not just on its weather, but also on its institutions. Burma, now Myanmar, was once the world’s leading rice exporter, but it is now an economic basket case and many of its people go hungry.

“Of course, wealthy countries are partly at fault, too. Japan, South Korea and Taiwan all protect their native rice farmers; you’ll even see rice being grown in Spain and Italy, aided by European Union subsidies and protectionism. The United States spends billions subsidizing domestic rice farmers.

From Steve Hanke published at Cato.org...

“The economics of commodity markets provides the key to unlocking this mystery. The net cost of carrying inventories is equal to the interest rate, plus the cost of physical storage, minus the "convenience yield".

“The convenience yield is driven by the precautionary demand for the storage. When the convenience yield is zero, a market is in "full carry", future prices exceed spot prices and inventories are abundant.

“Alternatively, when the precautionary demand for a commodity is high, spot prices are strong and exceed future prices, and inventories are unusually low.

“As the term structure of rice prices makes clear (see chart), the precautionary demand in Thailand is not elevated and inventories are ample. Indeed, for the term structure of prices to be signaling unusually low inventories, the term structure would be negative in slope, not positive.

Chart courtesy of Cato.org

“In most countries, rice production and trade are subject to a plethora of laws and regulations. Subsidies to rice producers and consumers are widespread. Tariffs on imports and exports are common, as are import and export quotas.

“Many of these policies derive from a food security rationale and the desire to keep a large proportion of rice production at home. In consequence, rice markets are segmented, with wide differences in rice prices (adjusted for rice quality and transport costs) among countries.

“Not surprisingly, a relatively small proportion – only 6%-7% – of world production is exported.

From IMF’s Dominique Strauss-Kahn

“Although aid is the first step, we must be bolder in tackling the long-term challenges of food supply.

“Many farmers are not increasing output because they are not equipped to gear up production or because market distortions mean they do not benefit from higher food prices. So, just waiting for the market to self-correct is not a satisfactory option.

“We must not lose sight of longer-term solutions. This calls for a more global approach to policies. Agricultural policies must change. Higher food prices over the past few years in part reflect well-intentioned, yet misguided policies in advanced economies, which attempt to stimulate biofuels made from foodstuffs through subsidies and protectionist measures.

“High food prices also reflect imprudent agricultural pricing policies in some developing countries, and these too need to be improved.

“No one should forget that all countries rely on open trade to feed their populations. But we are already seeing actions at the national level, such as curbs on food exports, that have a damaging global impact. Completing the Doha round would play a critically helpful role in this regard, as it would reduce trade barriers and distortions and encourage agricultural trade.

“The International Monetary Fund and the World Bank are also engaged in discussions to improve both industrial and developing country policies. Multilateral agencies are stepping up lending to the agricultural sector in poorer and middle-income countries to encourage and support good policies. But there is more to do, and the World Bank's New Deal on Global Food Policy is a big step forward.

“We also need a new approach to risk mitigation and insurance at the level of both individual farmers and countries. Important steps are being made in this direction by aid donors with regard to catastrophe insurance and developing robust futures markets. This can greatly help assure farmers that, if they make investments, they will reap the rewards.

“We should consider adopting a similar philosophy to dealing with shocks - including, but not limited to, energy and food prices - at the macroeconomic level. Countries need to feel more assured that insurance-type financing will be available in times of need. The IMF will play its part in this regard.

From Martin Wolf of the Financial Times...

“Are prices going to remain high? Two opposing forces are at work. The first is the market, which will tend to bring prices back down as supplies expand and demand shrinks. But the latter is also what we want to avoid, at least in the case of the poor, since reducing their consumption is not so much a solution as a failure. The second force is the current intense pressure on the world's food system. This is true of both demand and costs of supply. Prices are likely to remain relatively elevated, by historical standards, unless (or until) energy prices tumble.

“This, then, brings us to the big question: what is to be done? The answers fall into three broad categories: humanitarian; trade and other policy interventions; and longer-term productivity and production.

“The important point on the first is that higher food prices have powerful distributional effects: they hurt the poorest the most. This is true both among countries and within them. The Food and Agricultural Organisation in Rome recently listed 37 countries in substantial need of food assistance. Moreover, according to the World Bank, soaring food prices threaten to make at least 100m more people hungry.

“Increases in aid to the vulnerable, either as food or as cash, are vital. Equally important, however, is ensuring that the additional supplies reach those in greatest difficulty. The options depend on the sophistication of a country's bureaucratic machinery. But they include work paid directly with food (which is a good way of screening out the better-off), a rationed supply of cheap food for the poor or cash vouchers. Those most in need will be the landless, both rural and urban, and marginal subsistence farmers.

“Now turn to the policy interventions. Protection, subsidies and other such follies distort agriculture more than any other sector. Alas, the opportunity to eliminate protection against imports offered by exceptionally high world prices is not being taken. A host of countries are imposing export taxes instead, thereby fragmenting the world market still more, reducing incentives for increased output and penalising poor net-importing countries. Meanwhile, rich countries are encouraging, or even forcing, their farmers to grow fuel instead of food.

“The present crisis is a golden opportunity to eliminate this plethora of damaging interventions. The political focus of the Doha round on lowering high levels of protection is largely irrelevant. The focus should, instead, be on shifting the farm sector towards the market, while cushioning the impact of high prices on the poor.

“Finally, far greater resources need to be devoted to expanding long-run supply. Increased spending on research will be essential, especially into farming in dry-land conditions. The move towards genetically modified food in developing countries is as inevitable as that of the high-income countries towards nuclear power. At least as important will be more efficient use of water, via pricing and additional investment. People will oppose some of these policies. But mass starvation is not a tolerable option.

From Caroline Baum of Bloomberg,

“Many Asian countries, including India and Vietnam, are banning rice exports to ensure adequate domestic supplies. Last week, Indonesia stepped up border patrols to guard against rice smuggling.

“By barring producers from selling overseas, demand for rice in any given country is lower than if the Asian food staple were freely traded internationally. The demand curve shifts back, the price and quantity demanded are reduced….

“It may be a noble idea for poor countries to transfer income from producers to consumers, but it's one that comes with a long history of unintended consequences.

“Governments continue to interfere with the law of supply and demand; that's to be expected. What's surprising is that so many practitioners of the dismal science can't seem to get it right either.