Sunday, June 30, 2013

MR University

Great Economists: Classical Economics and its Forerunners

Who were the first economic thinkers? What are the very origins of economic thought? What did earlier economists understand but has been lost to the modern world? Why is Adam Smith the greatest economist of all time? How did the economic issues of the 18th and 19th centuries shape the thoughts of the classical economists? This class, which covers the history of economic thought up until the "Marginal Revolution" in the 1870s, will answer all of these questions and many others.

This course is non-technical and is accessible to a beginner. If you pass the final exam, you will earn our "Great Economists" certificate on your profile.

Saturday, June 29, 2013


This is a nice overview of how MRUniversity uses video to teach. The new course on Great Economists is wonderful.

Thursday, June 27, 2013

Another review of Nate Silver's The Signal and the Noise

This example and many others are neatly presented in "The Signal and the Noise." Mr. Silver's breezy style makes even the most difficult statistical material accessible. What is more, his arguments and examples are painstakingly researched—the book has 56 pages of densely printed footnotes. That is not to say that one must always agree with Mr. Silver's conclusions, however.

As someone interested in financial markets, I found myself unconvinced by Mr. Silver's view that it should not be "all that challenging" to identify financial bubbles "before they burst." He suggests that the dot-com bubble that deflated in early 2000 was identifiable in advance. The price-earnings multiple for the market was enormously elevated at 44. Considerable empirical work, shown in the book, was adduced to point out that long-run (10- or 20-year) rates of return from stocks have generally been poor or negative when investors entered the market at such lofty valuation metrics.

Wednesday, June 26, 2013

Nate Silver on the 2014 and 2016 Senate elections - very interesting.

More evidence ASET book club should read Silver's book - The Signal and the Noise.

The Big Picture

Summing up the possibilities across all 35 Senate races yields a net gain of four to five seats for Republicans, just short of the six they would need to win back the majority.

However, the margin of error on the calculation is very high at this early stage. Keep in mind that in each of the last four cycles, one party (Democrats in 2006, 2008 and 2012; Republicans in 2010) won the vast majority of the competitive races. If Republicans swept all the “lean” and “tossup” races, they would gain a net of eight seats from Democrats, giving them a 53-to-47 majority in the 114th Congress. If Democrats swept instead, they would lose just one seat and would hold a 54-to-46 majority. Considering the uncertainty in the landscape, estimates from betting markets that Democrats have about a 63 percent chance of holding their majority appear to be roughly reasonable.

One last factor to consider is that as difficult as the Democratic Senate map looks in 2014, Republicans could face an equally challenging one in 2016. In that year, seven Republican-held seats will be up in states won by Mr. Obama in 2012, while no Democrats will face re-election in states won by Mr. Romney.

Thus, as ridiculous as it might seem to look so far ahead, the most important reverberations from the 2014 Senate races might not be felt until 2016 and beyond. Republicans will need to make considerable gains next year to open up the possibility of a Republican-controlled Congress after 2016. If Democrats hold their ground, conversely, it would provide for the outside possibility of their holding a filibuster-proof majority after 2016.

Tuesday, June 25, 2013

IRS-style abuses endemic to expansive government

Last month, Robb analyzed the IRS/AP interventions by the federal government to argue:

He believes in entrusting such a government with enormous and wide-reaching discretionary authority. The he here is President Obama and Robb goes on to make the claim that "conservatives" are more apt to experience the cost of centralized and expansive state participation.

Robb is only half correct, think to Nixon as representative of the right (or Bush) in expanding government into what were once areas of personal liberty. Think of J. Edgar Hoover as representative of the apolitical and amoral (serving under both right and left) bureaucrats who post as great a threat to our liberties as right or left politicians.

In the following you can substitute Nixon, Wilson, Lincoln, or either Roosevelt for Obama - they are playing on the perceived trade off between security and liberty.

"In the Road to Serfdom, F.A. Hayek illuminated a different view of good government, one bound by what Hayek called the rule of law. According to Hayek, the essence of the rule of law is that “government in all its actions is bound by rules fixed and announced beforehand.” He quoted favorably A.V. Dicey that the rule of law “excludes the existence of arbitrariness, of prerogative, or even of wide discretionary authority on the part of government.”

A government of arbitrary powers distorts and diminishes productive enterprise. The people who live under such a government are less free.

Earlier in the month, Obama delivered one of his periodic odes to government in a commencement address to Ohio State University. Shortly after saying he wasn’t going to get partisan, Obama told the graduates to ignore those who “warn that tyranny is always lurking just around the corner.”

Well, tyranny may not be lurking just around the corner. But with a government of enormous and wide-reaching discretionary authority, you don’t have to turn the corner to run into arbitrary, abusive and prejudicial exercises of that power."

Monday, June 24, 2013

Arizona Economics Conference

For those Arizona economics educators wondering about our annual conference, early details are available.

The ASET (Arizona Society of Economics Teachers) annual conference will be held over the same weekend as the Arizona Council for the Social Studies (ACSS) conference.

The ACSS conference - "Common Core: Staking a Claim in the 21st Century" will be held Saturday, November 2, 2013 at Grand Canyon University.

As soon as more details are available I will post here or you can regularly check the ACSS site at -

Sunday, June 23, 2013

Congratulations to University HS, Tucson, Az

Congrats to Barbara Grey and her University HS Economics Challenge team for finishing 6th in nation!




National Finalist Teams (in alphabetical order)

Carmel High School / Carmel, Indiana

Lexington High School / Lexington, Massachusetts

Little Falls Community High School / Little Falls, Minnesota

Olympia High School / Olympia, Washington

Semi-Finalist Teams (in rank order)

5 Xavier High School / Cedar Rapids, Iowa

6 University High School / Tucson, Arizona

Friday, June 21, 2013

David Stockman writes:

Both Roosevelt and Nixon were aggressive politicians who lacked any enduring convictions about economic policy. Neither had any compunction at all, however, about using the taxing, spending, regulatory, and money-printing powers of the state to achieve their domestic political and electoral objectives. In the great scheme of modern financial history FDR and Tricky Dick were peas in a statist pod.

Thursday, June 20, 2013

A Lesson in Good English Writing . . . by an economist!

“The People’s Romance: Why People Love Government (as Much as They Do)” Daniel B. Klein in Independent Review, Volume X. No. 1. Summer 2005. p. 6,“The People’s Romance: Why People Love Government (as Much as They Do)”

“I am an errant economist with no claim to mastery of the materials dealt with here. I can only say that the constellation outlined in this article is one that I discern as clearly as I see the Big Dipper, but the points of light themselves wax and wane depending on how one gazes.”

Wednesday, June 19, 2013

Reinventing the Bazaar: A Natural History of Markets

This Greg Mankiw recommendation is a wonderful read. Along with The New Geography of Jobs, these are the most accessible, thoughtful and even handed applications of economics I have read this year. These two books would substitute for almost all introductory textbooks in economics to the benefit of students.

Readers looking for a basic primer on how our "market economy" works will find no better treatment than this first book by Stanford University professor McMillan. Taking the long view, he examines how markets in ancient times evolved and shows how countries experimented with markets, some successfully and some not. Not surprisingly, he judges countries like Russia and China with their centralized economies as not being truly market driven, but he lauds them for recent changes. Although he does raise the flag on "free markets" a bit much, he takes a refreshingly commonsense approach to his subject, doesn't talk down to his readers, and refrains from excessive economic jargon. The Internet is praised for breaking down barriers, and he terms the eBay web site "a high-tech flea market." Government deregulation is a good thing, but California, in his opinion, made a mess of it resulting in the energy crisis of last year. The bottom line for McMillan is that "the market system is like democracy. It is the worst form of economy, except for all the others that have been tried from time to time."

“There could be no better guide to the modern view of markets than McMillan's new book.” (Joseph E. Stiglitz, 2001 Nobel Prize winner in Economics )

“Lively [and] instructive... A colorful and authoritative look at how markets work and don't work in today's economy.” (Hal R. Varian, author of Information Rules: A Strategic Guide to the Network Economy )

“Required reading for anyone who wants to understand the "magic" of markets... Lucidly explained, brilliantly analyzed, and delightfully explored.” (Reed E. Hundt, former chairman of the Federal Communications Commission )

“McMillan's rich knowledge of ... current economic theory and ... economies in transition is well embodied in this ... sophisticated survey.” (Kenneth J. Arrow, 1972 Nobel Prize winner in Economics )

Sunday, June 16, 2013

The New Geography of Jobs

Last month I posted a series of reviews on this excellent book. In discussing cities and the role of hubs in the process of economic change, the examples in California are telling. The author compares and contrasts San Jose and Modesto and Seattle and Albuquerque (Modesto and Albuquerque were slightly ahead in the indicators referenced)during the 70s. We know how this story turned out, and the book makes a strong attempt to explain why. This is a book that all current students should either read or have read to them.

Friday, June 14, 2013

The real IRS/tax scandal

The real scandal is that all these complicated tax rules exist. If we would just eliminate the corporate income tax, then people could organize groups, or not, just as they please. And the IRS would not be in the position of deciding what counts as excessive political activity.


Monday, June 10, 2013

How Fannie made a profit

The excellent James Hamilton shines the light on accounting treatment, assumptions and an alternative (and I think accurate) assessment of the claim by Fannie.

Sunday, June 9, 2013

Saturday, June 8, 2013

Will Labor Force Participation Bounce Back?

A nice application of a concept we teach in macro and why it is important. The FED's conclusion:

The U.S. labor force participation rate has declined sharply since 2007, intensifying a downward trend that has been evident since about 2000. Distinguishing between long-term influences on the participation rate, such as demographics, and short-term cyclical effects is important because it helps us understand and predict the future path of macroeconomic variables such as the unemployment rate. Using state-level evidence on the relationship between changes in employment and labor force participation across recessions and recoveries, we find evidence, reinforcing other research, that the recent decline in participation likely has a substantial cyclical component. States that saw larger declines in employment generally saw larger declines in participation. A similar positive relationship was evident in past recessions and recoveries. In the current recovery, it will probably take a few years before cyclical components put significant upward pressure on the participation rate because payroll employment is still well below its pre-recession peak.

Friday, June 7, 2013

What’s at Stake With Grade Inflation?

This blog post hits it on the head - at my institution the most common grade is an A, followed by a W (withdrawal). Across the board we have institutionalized a set of lies.

Thursday, June 6, 2013

LAPTOP U - Has the future of college moved online?

This New Yorker piece really does capture the landscape of higher education and is must reading for those who are outsiders.

Note the last line of the quote in this blog - a reference to Baumol and the cost disease, the topic of a possible ASET book club selection.

When people refer to “higher education” in this country, they are talking about two systems. One is √©lite. It’s made up of selective schools that people can apply to—schools like Harvard, and also like U.C. Santa Cruz, Northeastern, Penn State, and Kenyon. All these institutions turn most applicants away, and all pursue a common, if vague, notion of what universities are meant to strive for. When colleges appear in movies, they are verdant, tree-draped quadrangles set amid Georgian or Gothic (or Georgian-Gothic) buildings. When brochures from these schools arrive in the mail, they often look the same. Chances are, you’ll find a Byronic young man reading “Cartesian Meditations” on a bench beneath an elm tree, or perhaps his romantic cousin, the New England boy of fall, a tousle-haired chap with a knapsack slung back on one shoulder. He is walking with a lovely, earnest young woman who apparently likes scarves, and probably Shelley. They are smiling. Everyone is smiling. The professors, who are wearing friendly, Rick Moranis-style glasses, smile, though they’re hard at work at a large table with an eager student, sharing a splayed book and gesturing as if weighing two big, wholesome orbs of fruit. Universities are special places, we believe: gardens where chosen people escape their normal lives to cultivate the Life of the Mind.

But that is not the kind of higher education most Americans know. The vast majority of people who get education beyond high school do so at community colleges and other regional and nonselective schools. Most who apply are accepted. The teachers there, not all of whom have doctorates or get research support, may seem restless and harried. Students may, too. Some attend school part time, juggling their academic work with family or full-time jobs, and so the dropout rate, and time-to-degree, runs higher than at élite institutions. Many campuses are funded on fumes, or are on thin ice with accreditation boards; there are few quadrangles involved. The coursework often prepares students for specific professions or required skills. If you want to be trained as a medical assistant, there is a track for that. If you want to learn to operate an infrared spectrometer, there is a course to show you how. This is the populist arm of higher education. It accounts for about eighty per cent of colleges in the United States.

It is also under extreme strain. In the mid-nineteen-sixties, two economists, William J. Baumol and William G. Bowen, diagnosed a “cost disease” in industries like education, and the theory continues to inform thinking about pressure in the system. Usually, as wages rise within an industry, productivity does, too.

Wednesday, June 5, 2013

The Case for Legalizing Horse Meat

The return of domestic horse slaughterhouses will be good for ranchers, butchers, chefs, consumers, and horses.

Tuesday, June 4, 2013

Monday, June 3, 2013

Saturday, June 1, 2013

An Original Thinker of Our Time - a review by Cass Sunstein

I have thought for some time our ASET group should read one of Hirschman's books, as all of these satisfy the emergent set of criteria that participants favor. This review of a new bio of Hirschman will, I hope, generate some interest in reading him.

Worldly Philosopher: The Odyssey of Albert O. Hirschman by Jeremy Adelman Princeton University Press, 740 pp., $39.95

Albert Hirschman, who died late last year, was one of the most interesting and unusual thinkers of the last century. An anti-utopian reformer with a keen eye for detail, Hirschman insisted on the complexity of social life and human nature. He opposed intransigence in all its forms. He believed that political and economic possibilities could be found in the most surprising places.

Hirschman is principally known for four remarkable books. The most influential, Exit, Voice, and Loyalty (1970), explores two ways to respond to unjust, exasperating, or inefficient organizations and relationships. You can leave (“exit”) or you can complain (“voice”). If you are loyal, you will not exit, and you may or may not speak out. The Passions and the Interests (1977) uncovers a long-lost argument for capitalism in general and commercial interactions in particular. The argument is that trade softens social passions and enmities, ensuring that people see one another not as members of competing tribes, but as potential trading partners. Shifting Involvements (1982) investigates the dramatically different attractions of political engagement and private life, and shows how the disappointments of one can lead to heightened interest in the other. For example, the protest movements of the 1960s were inspired, at least in part, by widespread disappointment with the experience of wealth-seeking and consumption, emphasized in the 1950s.

Finally, The Rhetoric of Reaction (1991) is a study of the reactionary’s tool kit, identifying the standard objections to any and all proposals for reform. The objections are “perversity” (the reform will make the problem even worse), “futility” (the reform will do nothing to solve the problem), and “jeopardy” (the reform will endanger some hard-won social gain). Hirschman shows that these objections are stupefying, mechanical, hyperbolic, and often wrong. In 1845, for example, the historian Jacob Burkhardt deplored the rise of democracy and the expansion of the right to vote on the ground that he did not “expect anything from the despotism of the masses but a future tyranny, which will mean the end of history.”

. . .

Of his many books, Hirschman’s personal favorite was The Passions and the Interests. His explanation is illuminating: It really was the fruit of free creation. I did not write it against anybody…. That book gave me prolonged pleasure: to write, feeling free to discover things without having to prove someone wrong. A very special case. That special case has proved to be an enduring achievement, not only because of its eye-opening exploration of the softening power of commerce, but also because of its own gentle and capacious spirit. But if The Passions and the Interests was his favorite, and Exit, Voice, and Loyalty his most important, there can be no question about his most characteristic: The Rhetoric of Reaction. The sustained attack on intransigence, the bias in favor of hope, the delight in paradox, the insistence on the creative power of doubt—all these prove a lot of people wrong, not just Hamlet.