The Happiness Index defined– move from Callifornia to Nebraska

If it’s financial happiness you’re seeking for your next move, then the Midwest may be your best bet because according to a new study Nebraska tops the list of happiest states, fiscally.

Which state has the sunniest disposition in this gloomy economy?

The home of the Cornhuskers, Kool-Aid and the world’s largest porch swing ranked No. 1 on MainStreet.com’s Happiness Index, which used unemployment figures, foreclosures and nonmortgage debt to determine a state’s overall financial well being.

“We don’t go clear out on the edge with projects. We kind of go pay as you go. That’s more what we like to do in Nebraska. We don’t get the huge good time, but we don’t get the huge bad time either,” said Hastings Mayor Vern Powers. “We kind of stay in a little flatter area. In the long term, we think that’s what’s best.”

Financial experts said other states can learn from Nebraska’s conservative attitude toward money, as well as its efforts to grow a diversity of industries.

Its ethanol plants, in particular, have flourished and the ongoing effort to grow industry has enabled people who lose jobs to find new ones relatively easily.

In fact Nebraska’s unemployment rate in February was a 4.2 percent. It also had one foreclosure per 25,187 households.

Happy, Happy, Joy, Joy for These States
The first-of-its-kind index also included Iowa, Kansas, Hawaii and Louisiana, which followed Nebraska on the list respectively.

And according to MainStreet.com, it’s no coincidence that the nation’s three happiest states all are in the Midwest.

“I think that on the coasts — In New York and California — we have a lot of people living beyond their means. But in the Midwest that’s often not the case,” said MainStreet.com general manager Harleen Kahlon. “Maybe the take-away is that living large is not the answer.”

Take the financially savvy billionaire Warren Buffet. The frugal Nebraskan still lives in the same modest home he bought in 1958 for $31,000.

The Least Happy States: Unemployment and Foreclosures
High unemployment and foreclosure rates elevated Oregon to the moniker of the least happy state financially. The Pacific Northwest state was preceded by Florida, California, Nevada and Rhode Island with the Sunshine State fairing the best among the quintet.

The nation’s unemployment rate rose to 8.5 percent, the highest in nearly 26 years, but these states’ statistics were even dimmer.

Both Rhode Island and California’s unemployment rate was 10.5 percent in February, while Nevada had 10.1 percent. Oregon had 10.8 percent and Florida had 9.4 percent.

But MainStreet.com said it expects movement in the happiness index. Oregon is expected to climb thanks in part to its investment in the green sector, which MainStreet.com predicts will experience a great deal of growth in months and years to come.

Globalization Powerpoint

Please find the powerpoint from last Wednesday’s Globalization lecture here : globalization1

Globalization Section this Week

This week we will be wrapping up the Globalization section with a discussion of the regulation of cross border policy issues. We will address the challenges of achieving policy outcomes across sovereign states in the absence of a global government, and amidst the reality of international economic competition and the quest for economic competitiveness.

 

Depending on how much time we have, we will discuss challenges in labor and climate change as examples.

 

The readings for this week are:

 

 

(E) The Golden Straight Jacket

(E) Globalization: Crisis of Regulation or Crisis of Capital?

(E) Susan M Collins, “Economic Integration and the American Worker”

Chapters 3 & 6 from “Making Globalization Work” by Joseph Stiglitz (focus on the trade, labor and climate discussions)

Final Assignment Questions

The following are the assignment questions for the last two assignments with their respective due dates:

Compare and contrast Sen’s view of economic rationality to a public choice theorist’s (i.e., Buchanan or Niskanen) view of the same. How might any differences translate into different viewpoints regarding rational decision-making in non-economic situations (for example, voting, government agencies, etc.)? (Due April 29,2009)

In class, we discussed the views on regulation of Stigler, Downs, Arrow and others. How would their perspectives regard/assess the regulation of the financial market before it suffered a meltdown last fall? What insights might these theorists offer regarding the best way to fix the financial sector? (Due on the last day of class)

Notes from April 8th’s Lecture

Please click on the following link to access the powerpoint  slides for last week’s lecture…   public_choice_2009

Josh

Warren on the Daily Show

Elizabeth Warren, chair of the Congressional Oversight panel for TARP, was on the Daily Show explaining the oversight of TARP.

The Daily Show With Jon Stewart	M – Th 11p / 10c
Elizabeth Warren Pt. 1
thedailyshow.com
Daily Show Full Episodes Economic Crisis Political Humor

The Daily Show With Jon Stewart	M – Th 11p / 10c
Elizabeth Warren Pt. 2
thedailyshow.com
Daily Show Full Episodes Economic Crisis Political Humor

This Week’s Powerpoint

Please find this week’s power point slides  here

European Banks & Bailouts

As unpopular as bailing banks out is in the US, at least we can bail them out. Europe may be pushing for tighter regulation of the financial markets, but they have bank issues that are much more problematic than ours if you make the assumption that regulation might prevent or mitigate most crises, but it is never 100% insurance against any crisis.

We have banks that have a balance sheet of 10-15% of GDP. The biggest banks total somewhere near 50% of GDP if I have my figure straight. There are individual European banks with balance sheets 200-600% GDP of their respective country. Iceland’s banks had balance sheets totaling over 1000% of GDP – it is no wonder the country went bankrupt.

The Financial Times has very interesting graphic.

-kc

Readings for This Week

The Readings for this week:

Buchanan: “Analysis of Closed Behavioral Systems”
Buchanan and Wagner
Niskanen

Next week
Downs
Stigler
Arrow

Unemployment Numbers

I’ve been told as recently as this weekend that, despite what I’ve heard, this is still not as bad as the 1981 recession (I am not old enough to remember it), but the March unemployment numbers beg to differ…

Change in Payroll for Recent Recessions

Yes, there were other negatives in the early ’80s, inflation, super-high interest rates, etc. but it wasn’t a financial crisis and it wasn’t global. And that is what Eichengreen (UC-Berkley) & O’Rourke (Trinity College) assert when they call this a depression in their article on VOX… when you look at the global picture, this is as bad as 1929. They hope the difference in the policy response will mean we don’t re-live the 1930s in their entirety.

One final thought:

Compulsive optimism, otherwise known as grasping at straws, is habitual for some economists, especially if they are selling public policy or common stock. But it is also dangerous, destroying credibility and to discouraging action. Repress it. – James K. Galbraith

And I though that economics was called the dismal science…

Chart from Justin Fox at Time

-kc

Orszag & Behavior Economics

There is a brief interview with Peter Orszag, director of OMB, on NPR. Just a brief take on his view of behavioral economics in the Obama Administration.

He was also on the Daily Show last week where he discussed deficit and debt:

The Daily Show With Jon Stewart	M – Th 11p / 10c
Peter Orszag Pt. 1
comedycentral.com
Daily Show Full Episodes Economic Crisis Political Humor

The Daily Show With Jon Stewart	M – Th 11p / 10c
Peter Orszag Pt. 1
comedycentral.com
Daily Show Full Episodes Economic Crisis Political Humor

-kc

Classes For the Rest of the Semester

For the next two weeks we will be tackling  Public Choice. Later for a about a class to class and a half we will wrap-up the Globalization section.Then for the last week (and probably a half of the prior week)we will have student presentations on your papers.

JCN

Tonight’s PowerPoints

The PowerPoint slides for tonight’s class are up.

We will be finishing Sen’’s book tonight. Our discussion will focus on the last three chapters.

This Week’s Reading Assignment

This week’s reading assignment is chapters 7, 8 and 9 in Sen. See you Wednesday.

- Josh

Paul Krugman Song

For your enjoyment:

-kc

Assignment Question

Pick a policy issue and demonstrate how globalization is increasingly reducing the traditional autonomy of the nation-state in policy making, while increasing interdependence among nations. What forces are particularly behind the unfolding of the issue you have selected at the global level? What is the position of the U.S.A. on this issue? Using theories discussed in class, what is your assessment of this position? In other words, is the U.S.A.’s response appropriate or do you have other recommendations?
  
Note: while you are free to select an issue that was not necessarily discussed in class, the issue should be within the domain of public finance or should directly affect the primary concerns/paradigms of public finance.

Due date: Wed. April the 8th, 2009

Today’s Lecture

Here is today’s Lecture…sorry for the late delivery.

sen_s_inequality_reexamined_ptii12

Inequality Lecture

Please click on this link for today’s  ppt. slides for the inequality section.sen_s_inequality_reexamined11

This Week’s Class – Globalization session

The Globalization session of this week’s class will cover two readings. The main one is “Spreading the wealth” by David Dollar and Aart Kraay and the responses to their article, basically pages 23 – 44.In this document if you have time you can also look at the “great divide …” by Bruce R Scott from page 53.

The second one is “international Financial Stability and Market efficiency as a Global Public Good” by Stephany Griffith-Jones. You will find both documents in the eRes reading list. 

As you look through the readings, for the first one, familiarize yourself to the arguments surrounding the issue of whether globalization increases inter- country and intra country inequality and consider the methodological approaches and fundamental assumptions that the authors take/make. 

For the second reading, think of the current economic crisis and how isolated ‘economic stimulus plans’ by individual countries will be insufficient if a global stabilization program is not pursued (the G-20 was just discussing this).Particularly, think of such objectives within the current world economic order or financial architecture, and the opportunities and challenges it faces as Griffith-Jones discusses it.

 

Let me know if you have any questions.

 

Josh

Not every country is suffering

According to the Business Pundit, there are 10 countries where the economic crisis hasn’t made a dent yet. However, the posting is dated last September so I’m pretty sure that some of the countries have been hit since; China springs immediately to mind. I’d be surprised if the list was unchanged from last year. Now, maybe in terms of relative effect, these countries have been least affected. But even so China seems pretty hard hit by layoffs and the severe drop in consumer demand.

AIG (or is it the US Government?) Paying Bonuses

The New York Times reports today that AIG is paying $165 million in bonuses to the financial services unit (the origin of of the CDSs, etc. that made some really bad lending by banks affect EVERYONE). This is in addition to the $121 million paid across the rest of the company.

The US government owns 80% of AIG, having given it $170 billion (so far) in bailout money, and Geithner did “pressure” them to cut bonuses for top executives and *gasp* tie the rest to performance. But they are going ahead with it because they are “contractually obligated”…

Just as Jon Stewart pointed out on Thursday, most of the people at AIG are hardworking, honest people who should not be held morally responsible for the bad decision making of those at the top. But there are plenty of people whose only connection with the entire mess is their company can’t get its regular line of credit from lending institutions that are not only not getting their bonuses, they are having health insurance, employer contributions to retirement, pay, and even their jobs cut… all things their company was “contractually obligated” to pay until they found themselves unable to pay their bills.

Homo Economicus (AKA Greed) Examined–The Daily Show Style

A little entertainment in case you haven’t seen this “Mad Man Cramer v. John Stewart” piece (about 12 minutes) . This would be pretty funny if it weren’t so darn serious since mine and many others 401K is now a 201K. Hank Paulson (Former Treas Sec) takes a serious hit in this piece–as well he should (Schulte, 2009)

Below is the link

http://www.thedailyshow.com/full-episodes/index.jhtml?episodeId=220533

And the Banker Speaks…

Jamie Dimon, CEO of JP Morgan Chase, spoke to the US Chamber of Commerce on March 11. There are a couple of things that struck me listening to this:
(1) I wish I had listened to this before I turned in my paper; he answered the question, better than I did: we all caused the crisis by acting in our self interest by pulling our money out of bonds, etc. because we felt over exposed (whew, I thought it was all of us with too much debt, but he placed the fault squarely on the shoulders of people with money, how very populist, sort of, of him)
(2) He repeatedly says “we all know there are too many regulators” and then proceeds to suggest a new/strengthened/reinstatement of regulation.
(3) He sounds oddly confident, saying (of course) JPM will be fine, most banks will be fine and if not we can deal with that…
(4) He criticizes (albeit somewhat reservedly) compensation caps because, apparently European banks snapped up some of our “top talent” the day they were announced…
(5) He complains at some length at the unproductive, even harmful demonization of corporate America (particularly the banks) and he wants leaders and politicians (he distinction, not mine) to “stop it”, it is America’s business…
(6)Why again are we listening to the guys who were at the helm for the crash? Even if it was as unavoidable at the iceberg was for the Titanic, I don’t think NOW is the time for them to come out and tell we should have avoided the iceberg, especially after having thoroughly neglected their responsibility to provide and maintain life boats.

Where are the tar and feathers?

Sen on Smith’s take on the Crisis

Amartya Sen wrote a commentary in the Financial Times on what guidance Adam Smith’s writings might give us for dealing with today’s crisis. Interesting, not what you normally hear about Smith.
-kc

Nationalization For Beginners

James Kwak wrote a brief explanation of bank nationalization on Baseline Scenario. This blog is pretty useful, has a really good “for beginners” section and was founded by Simon Johnson, former IMF official — an organization that has long been in the business of forcing countries to nationalize (temporarily) financial systems with the imprimatur of the US government.

-kc

Blinder on Nationalization of Banks

Blinder commented on nationalization of banks in today’s New York Times. He is an opponent and offers some good arguments. There are some reasons that his qualms may not be entirely accurate. Krugman is not pleased.

First, he states we have 8,300 banks. True, a lot of those have already collapsed and had the FDIC take over (FDIC just got a $100b credit line to cover more and bigger bank failures). A lot will collapse in the future regardless of whether or not nationalization takes place. The point is that no one is advocating (to my knowledge) nationalizing ALL banks. Isn’t it a bit nonsensical to categorize Smalltown Bank in the same category as Citi, Bank of America, JP Morgan, and Wells Fargo?

Second, Citi, BoA, JPM, and WF account for 64% of commercial bank assets (check out pie chart).

- KC

How does the graduate income tax work again?

ABC news <a href=”http://abcnews.go.com/print?id=6975547 it about people with incomes over $250,000 looking to reduce their income so as to not face increased tax rate.

63-year-old attorney based in Lafayette, La., who asked not to be named, told ABCNews.com that she plans to cut back on her business to get her annual income under the quarter million mark should the Obama tax plan be passed by Congress and become law.

“We are going to try to figure out how to make our income $249,999.00,” she said.

“We have to find a way out where we can make just what we need to just under the line so we can benefit from Obama’s tax plan,” she added. “Why kill yourself working if you’re going to give it all away to people who aren’t working as hard?”

And

“I’ve put thought into how to get under $250,000,” said Poczatek. “It would mean working fewer days which means having fewer employees, seeing fewer patients and taking time off.”

“Generally it means being less productive,” she said.

Poczatek argued that by reducing her income from her current $320,000 to under $250,000 by having her dental hygienist work fewer days and by treating fewer patients, she would avoid paying higher taxes on the $70,000 that would be subject to increased taxation if Obama’s proposal is signed into law.

Additionally, any interest from a checking or savings account or capital gains from stocks, would also count as taxable income.

“The motivation for a lot of people like me — dentists, entrepreneurs, lawyers — is that the more you work the more money you make,” said Poczatek. “But if I’m going to be working just to give it back to the government — it’s de-motivating and demoralizing.”

I couldn’t find the original article, but my understanding from Krugman’s comments is that they added significant discussion about how our marginal income tax works… you only pay the higher rate on the money falling above the $250K mark, not all of the income.

I am trying to imagine what the impact of the system that these people apparently think is in place… and what a rude awakening it might be to “work” to get your $300K+ income under $250K only to realize that you really haven’t reduced your tax burden relative to your income that much but you have reduced your income substantially. Such a system could do a lot toward restructuring our over-worked society.

However, the issue of taxing savings account interest and capital gains in another question altogether. I agree with the taxing of capital gains, it is not “work” and it is not going to taxed as such a rate to discourage people from investing anyway. The savings account interest in another issue. Right now, the increase from negative savings rate to ~5% savings is not helping the situation (prior to 1980s it was ~12%, oh those were the days…), but in the long run, doesn’t it make sense to incentivize plain ol’ regular savings to help us avoid messes like this? Maybe a cap of sorts, saving up to a certain amount are tax exempt…

Also interesting to note that the two people quoted in the interview were women. That strikes me as unusual.

-kc

This American Life – Bad Banks Episode

This American Life had another episode about the economy this weekend. This explained the whole “bad bank” phenomena. It really is a must listen. There is a part in there where the read a memo written by a Deutsche Bank economist about the US government’s options at this point. Hosts Adam Davidson and Alex Blumberg classify it is a ransom note and the bank’s economist doesn’t really disagree!

Adam and Alex speak to Simon Johnson (Baseline Scenario blog), a former IMF office who says to “stop whining” and nationalize the banks. It is was the US would have made other countries do in the 1990s with the same set of facts.

They also looked at a graph of total personal debt to GDP… the only other time it got this high (100% by the way) was 1929… This brings us back to the question of equity and is it good to have so much disparity between the high and the low.

One reason to answer “no” is the high end having a lot of money drives up the cost of living for everyone. How? Take a nice coastal community that is mixed-income, primarily low to middle. Then it becomes the new Martha’s Vineyard because you have all of these newly and increasingly wealthy (hedge fund managers, bankers, etc.) that have money to burn but can’t buy a place on Martha’s Vineyard, there are none to be had. This drives up the price of real estate: locals start to see deals too good to pass up, landlords fail to renew leases because they are upping the rent, converting to condos, or selling out. You throw in a questionable eminent domain where a low income neighborhood is bulldosed for the new promenade, and you’ve converted a low/moderate mixed income community into a high-priced second home “community” where lots of people who used to live there have to commute into work. And voila, the price of living increased for those “locals” because now they spend a lot more transportation and/or housing – that is without a spike in gas prices, not to mention that Aldi’s lost its lease, the strip mall was razed, and WholeFoods went in to the new shopping plaza that replaced it.

I won’t dispute that we spend a lot of money on “things” that are nice to have but not necessary and that is an important source of our current woe. But I question how much is due to that. To hear this discussed, it is all because low and middle income people bought iPod and McMansions. But there are a lot of people carrying a lot of debt because of (1) medical expenses and/or (2) student loans. These were not huge burdens a generation ago… a generation ago many state universities were still free or charged only a nominal fee. Now, the average (lumping staters together with ivies) undergraduate leaves college with almost $20,000 in student loan debt… some are upwards of $100,000. Medical costs are the number one reason for personal bankruptcy (note: student loans are NOT a reason for personal bankruptcy because student loans are not subject to bankruptcy). How much can these increases in debt (and decreases in savings) be attributed to increasing disparity? I think in both cases a fair amount.

-KC

Readings for March

We will be finishing up Okun this week and start to discuss A. Sen. For Sen, we will begin by providing some introductory material in which he attempts to show the narrowness of mainstream economics due to its absence of a moral/ethical dimension. Next, we will talk about the Preface, Introduction and Chapter One. If there is time, we will start on Chapter Two. It is a dense read and it will take us the entire month of March to get through.

2010 Budget

The NYT has a brief article about the newly released 2010 budget.

There was something that caught my eye:

Before becoming Mr. Obama’s top economic adviser, Lawrence H. Summers liked to tell a hypothetical story to distill the trend. The increase in inequality, Mr. Summers would say, meant that each family in the bottom 80 percent of the income distribution was effectively sending a $10,000 check, every year, to the top 1 percent of earners.

Reminiscent of Okun’s Leaky Bucket, only I would bet that bucket isn’t that leaky… which has prompted another thought, what happens to the money “leaked” from said bucket. Borrowing from Stone, one person’s inefficiency could very well be another person’s job. So, that being said, the administrative costs of collecting money means employment for IRS agents, sales for computer companies, office suppliers, etc. How much of that actually gets funneled back into the pockets of the wealthy through those very mechanisms – computer sales, office supplies; and how much might actually continue to trickle down – a decent clerical or janitorial job for low-income, high school graduate or a secure stable job for a middle-income college graduate? Would the answers to these questions affect how much “leakiness” is deemed acceptable?

-KC

Yikes!

I had to share this!

From DeLong

http://delong.typepad.com/sdj/2009/02/holy-monetarism-batman.html

Mortgage Crisis

After Freddie and Fannie were taken over last fall, followed shortly by the implosion of the entire credit market, it became “conventional wisdom” among some circles that Freddie and Fannie (and by extension the liberals in Congress who are lobbied by them) and the Community Reinvestment Act cause the financial meltdown. If the federal government has not forced lending to risky clientele (CRA) and artificially expanded the secondary mortgage market (Freddie and Fannie) none of this would have happened. Gordon covered this pretty well.

Well, Krugman, Thoma, and others have worked to debunk this and I have been reading a study using HMDA data from 2004. There was a very interesting set of tables (p. 20 & 22) that at least shoots some holes in that theory:

- %High priced (correlates with sub-prime) loans sold to GSE: 0.1%

- %High priced (correlates with sub-prime) loans sold to “Other Conduits”: 63.8%

- %High priced loans that are originated by CRA-regulated institutions: 16.1%

- %High priced loans that are originated by Independent Mortgage Bankers (e.g., Ameriquest): 83.4%

- %Low priced (correlates with prime) loans sold to GSE: 28.5%

- %Low priced (correlates with prime) loans sold to “Other Conduits”: 19.1%

- %Low priced (correlates with prime) loans originated by CRA-regulated institutions: 66.0%

- %Low priced loans that are originated by Independent Mortgage Bankers (e.g., Ameriquest): 26.2%

My understanding is that “Other Conduits” would include but is not limited to the MBS market where investment banks bought up mortgages, bundled and securitized them, then sold them. So this could be used to argue for “crowding out” – all that was left for other conduits was the sub-prime lot. OR since this market (for obvious reasons) was not very big prior to the early-2000s, it could be that this market was “artificially” expanded by the private sector due using the CHEAP money floating around.

-KC

DeLong and the Nature of Economics

I thought DeLong’s observations about the nature of economics especially vis-a-vis the current crisis is worth sharing:

Justin Fox Is Still Perplexed

He wonders:

Brad DeLong tutors me on fiscal stimulus :: The Curious Capitalist – TIME.com: I guess what continues to perplex me at least a little is how lacking in the customary rigor of modern academic economics the arguments for stimulus are. It’s basically just, We ran gigantic budget deficits during World War II and the economy got better. That’s the kind of argument I would make, not the kind of argument I’d expect from the chair of the Political Economy of Industrial Societies major at the University of California Berkeley. It’s just all so seat-of-the-pants. But it’s better to be approximately right than precisely wrong, I guess…

“Lacking in the customary rigor…” Justin could mean either of two things:

1. Rigorous economics should produce tightly-estimated conclusions based on statistical sieving of mountains of data, like: when Safeway cuts grocery prices by 1%, its sales rise by 1.456%.
2. Rigorous economics should involve lots of theoretical equations with sigmas and rhos and betas in them.

With respect to the first possibility, Justin’s expectations are just too high. We cannot build models up from precisely-known microfoundations–we are not chemists who can calculate how molecules should behave because we know how the electrons and the nucleons that make them up do behave. We don’t have that many past examples of large-scale fiscal stimulus programs, and so we do the best that we can–and to be up-front about the partial and uncertain state of our knowledge is part of doing the best that we can.

With respect to the second possibility–well yes, I could make a bunch of arguments with lots of theoretical equations with sigmas and rhos and betas in them, but once again these theoretical equations would not rest on any solid microfoundations. Chemistry theory is built on top of physics theory. But economic theory–it is just a bunch of people looking at historical episodes and saying: “it looks like this is what happened a bunch of times in the past; let’s build a model of it.” Economic theory is crystalized history. But when the historical episodes out of which theory is being crystalized are as rare and as scarce as they are in the case of large-scale fiscal stimulus programs, why crystalize? Why not just take the history raw?

- KC

Essay question #2

The answer to the second essay question is due on Wednesday March 11.

Essay Question #2

A key assumption underlying modern economic thought is that humanity behaves according to the rational actor model (e.g. homo economicus). Simply put, the term refers to economists’ theory that humanity is driven primarily by rational, self-interest (i.e., we respond to incentives and trade-offs). Use the rationality model to explain the causes of the current financial crisis.

Credit Crisis Video

What happened to the adage “diversify, diversify, diversify”?

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

I think now the problem is beyond the irresponsible borrowers, we are now getting into the “responsible” home buyers who bough within their incomes (and are now underwater so can’t refinance) and have lost one or both incomes – even if they save the recommended 6 months (or it is a year?) worth of living expenses, a long time to be unemployed in a normal economy, that money might be running out on that with little hope on the horizon…

And what about the irresponsible and predatory lenders?!?

Term Paper for PPS 612

The following is based on the University of Santa Clara’s Guide to Literature Review (http://library.ucsc.edu/ref/howto/literaturereview.html). There are others equally good available on line. However, the grading rubric for the term paper is based on this document.

Do not confuse this with a book review, a scholarly literature review is a survey of relevant peer-review journal articles, books and other scholarly sources (e.g. dissertations, conference proceedings) on a particular issue, area of research, or theory. The literature review describes, summarizes, and critically evaluates each work in order to provide an overview of the relevant scholarship in a particular area of research.

It is useful to think of a good lit review as consisting of several steps. Each one is a vital component. Structurally, the 4 major sections of a lit review include:

1.Problem statement—what is the subject, topic or field being examined      and what are its key issues?
2.Literature search—gathering the relevant materials relevant for the topic under consideration
3. Critical evaluation—which literature contributes the most to an understanding of the area of research?
4. Analysis and conclusion—what are the chief findings and conclusions of the body of scholarship under consideration

Additionally, lit reviews need to provide the reader with the following:

1. A comprehensive overview of the scholarly issue being considered; the lit review’s author should have specific objectives in mind that he/she wishes to accomplish in the lit review
2. A division of the pertinent literature into topics, categories or some other classification (e.g. lit in support of a particular position, those against, and those with entirely different points-of-view)
3. A consideration of each work in terms of their similarities and differences with the others
4. An evaluation of the literature that makes the strongest case for their position, have the most convincing analysis and findings, and contribute the most to their area of research in terms of advancing understanding of a particular topic or theory.

The purpose of the literature review in this course is that it will serve to further your thinking about a particular topic, area of research, and theory and may, later on, constitute either part of or an entire chapter in your dissertation. This, in addition, to focusing on the public finance aspect or aspects of your proposed research.

In sum, your lit review should have each of the following main elements. First, show how each work contributes to an understanding of the area of research, topic or theory under consideration. The works are arranged topically rather than organized by author as in an annotated bibliography. Second, your review should also show how each work is related to the others in the literature review. Third, discuss differing interpretations of the theory, data and analysis used in previous research as well as shed light on any gaps in, previous research. Fourth, identify areas of prior scholarship to avoid overlapping too much and to indicate the way forward for further research. Later when you do your dissertation, your lit review will place your work in the context of existing literature.

Josh N

Role of Government in Farm Technology

I haven’t come up with any hard numbers, but I did go back to Adams & Brock (1995) The Structure of American Industry, 9th edition, to the chapter about agriculture by Suits. Suits writes on page 19:

…we need not depend on the farm to develop its own technical improvements, as part of this job has been undertaken by the laboratories of state universities and agricultural experiment stations. To a far greater extent, however, improvements have arisen fromt he work of farm equipment firms, chemical manufacturers, and other suppliers to modern agriculture. [emphasis mine].

So, according to Suits, the private sector is much more responsible for the technological innovation in that sector as well. I would note, however, that Okun’s unconventional definition of joint inputs (1975, p. 60), could be used as an argument to give the government more credit. The extension systems out of the land grant universities serve as a vital means for diffusion of information and best practices. In other words, they create the pathways that private sector piggy backs off of (even unintentionally) to spread the use of their technological innovations… probably still wouldn’t reach the bar of the government being a “major” player.

-KC

TARP and Accountability

I came across a timely column in the NYT this evening that ties is closely with Okun. On page 60 & 61, Okun (1975) writes about the importance of the government making sure the public’s money is spent wisely even if it has to spend a great deal of additional money to do so “Because the government get its funds from taxpayers by mandatory, and not voluntary, decisions, there is no room for the principle of caveat emptor in the area of public services. The government must be accountable to the citizens, and accountability is as costly in resources as it is precious to the integrity of the political process. Bureaucratic red tape is neither an accident nor a reflection of bad rules or inept officials: it is the result of the obligation of political decision-makers to be cautious, to avoid capriciousness, to take account of the full range of interests and impacts of the course they adopt, and to guard against any misuse of taxpayers’ money,” (p. 60).

-KC

Writing a good class essay

The elements of a good essay for this class are fairly simple to learn. Once you know them you can apply them over and over again. To a large extent, they apply to the class paper and further down the road, the comps as well.

Structure

A good essay begins with a thesis statement. This is where you state as precisely as you can what it is that you intend to write about in the essay. Use a hierarchical structure (i.e., first state the most important point you wish to make, then the second most important point, etc.) in the thesis, which can be several sentences long.

The body of the essay follows the thesis. In this section, you will marshal the evidence you will use to prove your assertions, which you made in the thesis. The evidence is your collection of facts, data and observations–which should be referenced–that support the major points you intend to make. There should be a logical flow to the argument you are making. In other words, when you organize this section, the evidence backing the major points come first followed by the secondary ones, etc.

In the conclusion, you restate in briefer form your thesis and summarize the main points you made previously in the body. This is the last opportunity you will have to drive home your points.

If you cite any article, books, etc. these are put in a references section at the end after the conclusion.

This Week’s Reading

This Week’s Reading is the Arthur Okun Book (The first two Chapters).

Arthur Okun sheds light on how conventional economic theory mainly focuses on efficiency and productivity, while the distributional effects (equality) of a capitalist society are avoided. It is to the extent that the two concepts of ‘efficiency’ and ‘equality’ are almost deemed as mutually exclusive or essentially antagonistic.
He brings up the issue of social and political rights, and categorizes social goods into those should and should not rely on the market mechanism for provision. He identifies access to nutrition, health care, and housing (among others), as such goods, and disapproves the market mechanism’s violation of these “fundamental rights of survival”. What is your perspective on this view? Are goods such as health care a right or a privilege?

As we read Okun, let’s think of the concepts of “market justice” and “social justice”. In keeping with the tradition of the course, let’s continue to think of these perspectives in the context of the major paradigms of the course.

GDP Forecast

Not pretty…

WSJ February Survey of Forecasters

Figure 1: Log real GDP, from 30 Jan 2009 preliminary release (blue), potential GDP (black), WSJ mean forecast from January survey (teal), from February survey (green), mean forecast (red) as related in RTE blogpost (2/11/09). Gray shaded area denotes recession, assuming recession has not ended by 09Q4. Source: BEA NIPA Q4 advance release [link], CBO estimates of 9 Jan 2009, WSJ survey of forecasters from January and February [link], and NBER.

From the Econobrowser.

-Kathleen

Today’s PowerPoints

Sorry to be a little late. Click on this link to get the slides.

We will be guided in our discussion by the following question:

1) What do economic policymakers view as the most troubling market failure and, therefore, the one that needs the most prompt corrective action on government’s part?

2) Is this a view shared by the three economic paradigms?

3) What role does production play in keeping the economy afloat?

4) What is the necessary “flip-side” of production in the current economic regime?

5) Why is the current way that GNP calculated problematic from the standpoint of sound economic policy?

Today, as you know, your first essays are due. Joshua and I will be grading them based on the following rubric.
Rubric for grading finance essays

structure:

1. What is the author’s thesis?
2. How effectively does the author state his/her thesis?
3. How organized is the essay? Does the author make his/her points in a logical manner? (take points off for rambling)
4. Does the author develop his/her thesis effectively (i.e., does he/she make a persuasive case?)
5. What is the author’s conclusion? Does he/she summarize the main points?

content:

1. Does the author quote any of the articles from class (include blog entries)?
2. Does the author attempt to incorporate any of the three paradigms discussed in class?
3. Does the author show any familiarity with the concepts discussed in class?
4. Does the author incorporate the class material into his/her answer with skill?
5. Does the essay make sense?

The above criteria will also apply to future essays. The next one will be assigned later this week and will be due two weeks from today.

The social power of “stuff”

The recent posts have been on the stimulus plan (on its way to passage in the Senate, see WSJ article here) or corporate executive pay. However, as the NY Times Magazine article from last Sunday suggests, the roots of the problem actually go much deeper than the recent economic downturn and poor corporate judgment. David Leonhardt talks about the importance of social norms and how they are frequently (always?) ignored by economists and policymakers in general. Perhaps the biggest social norm regarding the economy is growth and what fuels it, namely consumer spending. This idea is so firmly entrenched that neither Republicans and Democrats are willing to challenge it. So both sides are arguing over what is the best way to accomplish the same thing: Get consumers spending again to drive up aggregate demand, which in turn will lead to producers producing and creating new jobs, etc. The downside to all this is the overemphasis on consumerism as the engine of economic growth. That leads to the type of rumination found in this essay by the famed computer programmer, Paul Graham (inventor of anti-spam software). The idea that we don’t own stuff, stuff owns us is as old as Thoreau’s Walden and probably goes back to the New Testament. But, in light of our current economic crisis and long-term sustainability, it is useful to reflect on the wisdom of consumerism as the only way to keep our economy humming. The other alternative, as suggested by Galbraith and Krugman, is shifting capital into social investments such as improving our education and health care systems and rebuilding our nation’s infrastructure.

Tomorrow’s PowerPoint

Follow this link to download the PowerPoint slides for tomorrow’s class (excluding Joshua’s section on Globalization). To save trees, I will not bring hand outs to class anymore. Instead, I’ll post the slides online at least 24 hours before.

If you have trouble accessing the slides contact me or Joshua.

For class on Wednesday

This week we will be reviewing the theories we’ve talked about so far in class. As a way of framing this discussion please read the following article by David Leohardt, which appeared in yesterday’s NY Times Magazine. As you read the article, come prepared to discuss the following:

The article discusses Mancur Olson’s work on interest groups. How does Olson’s theory fit with the three paradigms?

What is “investment-deficit disorder”? What does the author say cause this economic malady?

Why does Leonhardt think it is so important to transform as opposed to merely stimulate the economy?

Why is health care so hard to reform?

What is the connection between public education and economic growth?

Leonhardt makes reference to something in the last section of the article that takes us full circle to Heilbronner in the first class. What is it?

Short essay question

Conservatives and liberals offer different views regarding the role of government in the current financial crisis. Conservatives contend that government involvement in the economy has contributed to deficit spending, over-regulation and high taxes; while liberals contend that deregulation or lack of government intervention is the leading cause of the current fiscal crisis. Given the difference between the two camps, defining/understanding government’s role in the economy is an important step in finding a solution to the current crisis.

Read the articles by Gordon and Blinder and watch the interview with Martin Feldstein and Joseph Stiglitz on Charlie Rose. What can you infer about what the writers and the interviewees think about government’s role? How do Stiglitz’ and Feldstein’s attitudes toward Obama’s fiscal stimulus plan reflect their conception of the proper role of government in the economy? Where would you classify each one in terms of the three paradigms discussed in class?

There is class tonight

Despite the snow and ice, the powers-that-be have mandated that learning will go on! Take a look at the discussion questions from yesterday’s and the first post.