A bit more on Bitcoin-based innovation

Such “permissionless innovation”, in the jargon, should in time result in a cornucopia of applications. Bitcoin’s technology could be used to transfer ownership both in other currencies and of any kind of financial asset. This, in turn, would allow the creation of decentralised exchanges which let asset holders trade directly. And money could be “programmed” […]

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Reklámok

Schuck on Why Government Fails So Often, by David Henderson

I’m working my way through Peter H. Schuck, Why Government Fails So Often. It’s due out next month from Princeton University Press and I’m writing a review of it. I’m over halfway through and I’m loving it. Schuck does a beautiful job of laying out all the problems with government intervention. I’ll have trouble narrowing the list of juicy items to highlight in my review.

The book is subtitled "And How it Can Do Better." I’m skeptical that he’ll come up with much in that department given how powerful a case he makes for the thesis in his title. But, hey, I’ll keep an open mind.

As I said, there are many gems in this book. In a section on how little effect political contributions and lobbying have on changing votes, Schuck quotes the following from another author:

In 2011, the Chamber of Commerce and the AFL-CIO joined together to call for a major reinvestment in American infrastructure. None passed. In 2010, most of the health care industry was either supportive or neutral on the Affordable Care Act, and if any one of them could have swung the votes of even a few Republican senators or congressmen, the desperate Democrats would have let them write almost anything they wanted into the bill. But not one Republican budged. In 2009, the Chamber of Commerce endorsed the stimulus bill as a necessary boost to the economy. Not one House Republican voted for it.

Question: Who said it? If you Google, then please don’t report your answer. (7 COMMENTS)

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Unemployment was 9.0% in May 1975, and money was too easy, by Scott Sumner

There’s a lot of discussion about the natural rate of unemployment. Some think we are already close to the natural rate. Others think the labor market is much weaker than the official 6.6% figure would suggest. Evan Soltas has what looks to me like the best analysis of the situation:

The fact that the unemployment rate appears to be a robust predictor of the quit rate both before and after the 2007-2009 recession suggests that the unemployment rate, our imperfect observation of labor-market tightness, is a close proxy for the tightness people think is important when they decide to quit or not to quit.

Evan calls the labor market "tight." I probably wouldn’t use that term, but we both agree that 6.6% unemployment is a pretty fair characterization of the actual state of the labor market. The natural rate of unemployment has not changed much in recent decades.

In May 1975 the unemployment rate was 9.0%. And yet strangely enough monetary policy was actually too loose at the time. NGDP grew at a 9.1% rate in the second quarter of 1975, and an astounding 12.1% over the next 4 quarters. The high inflation of the 1970s had nothing to do with supply shocks (RGDP growth was normal) it was simply excessively fast NGDP growth, plain and simple. Easy money.

The Fed should have tried to gradually reduce the NGDP growth rate, over a period over years. Instead the problem got worse after 1975. Indeed even Volcker initially made the problem worse. His sharp swing toward easy money in the run-up to the 1980 election pushed NGDP growth to an annual rate of 19.91% in late 1980 and early 1981. (No, that’s not a typo.) Only after Reagan took office did Volcker finally decide to bring inflation down.

The central bank can never really know where the natural rate of unemployment is. If they had a proper monetary policy they would not even pay any attention to unemployment.

(11 COMMENTS)

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The European Commission: Lagarde for president

CHANCES for a new beginning in Europe are rare and should be seized. In the coming months, after five can-kicking years of crisis and austerity, the European Union will clean out its executive suite and appoint new presidents of the European Commission (the EU’s executive arm) and European Council (representing national governments), as well as a new foreign-policy chief.The EU desperately needs a fresh vision. Its citizens are disenchanted with the remote machinations inside Brussels. Insurgent political parties, many of them anti-EU, are snapping at the heels of the centrists. If the EU were a company, its board would have been sacked: if it were a football team, it would have been relegated. It needs new leadership.Unfortunately, Europe’s leaders have not got the message. The names being canvassed for commission president include two former prime ministers of smallish countries, Jean-Claude Juncker (Luxembourg) and Guy Verhofstadt (Belgium), an assortment of obscure European commissioners and the president of the dysfunctional European Parliament, Martin Schulz of Germany. It is an uninspiring list of Eurocrats, still mouthing nostrums about ever-closer union….

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Is soccer good for you?

Doerrenberg and Siegloch say maybe so, especially if you are unemployed: We examine the effect of salient international soccer tournaments on the motivation of unemployed individuals to search for employment using the German Socio Economic Panel 1984–2010. Exploiting the random scheduling of survey interviews, we find significant effects on motivational variables such as the intention […]

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Free economics resources on-line

Here is a bleg from Austin Frakt: I’m looking for free or cheap, but good, resources on economics, ones people might use for self-education. I’ve listed some about which I’m aware below, though I haven’t looked in detail at all of them, so the extent to which they—or that to which they link—are “good” is […]

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Evolutionary Psychology on Crusonia, by Bryan Caplan

Suppose two 20-year-olds wash up on a the desert island of Crusonia.  One is male, the other female.  They are both from the same country, but are otherwise randomly selected.  Both are convinced they have no hope of escaping the island.

Two questions:

1. What fraction of castaways pair bond over the next ten years?

2. If the castaways are unexpectedly rescued and return to their home country, what fraction of pair bonds remain together over the following ten years?

Please show your work.

(2 COMMENTS)

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China, and the soaring price of Bitcoin

Here is one clue as to what is going on: To what does he [Zennon Kapron] attribute bitcoin’s popularity in China, and how could others benefit from it? “There’s BTC China’s no-fee trading for starters. You can leave your money on the platform, your coins on the platform, and trade in and out for free,” […]

via Marginal Revolution http://marginalrevolution.com/marginalrevolution/2013/11/china-and-the-soaring-price-of-bitcoin.html

European Union, which steps forward?, by Alberto Mingardi

An almost invariable mantra of European politics is that Europe needs "an ever closer Union". Political centralization is commonly considered the only way out of the crisis – meaning, first of all, centralization of fiscal policies, as an all-powerful Brussels should be able to (a) put order in the balance sheets of profligate member states (the stick) and (b) put an end to the tax competition that endangers fiscal revenues of high taxed member states (the carrot).

Different perspectives are seldom heard, and often marginalized. Bruegel, a Brussels-based think tank whose supporters include EU member state governments, has now published an interesting paper by Ashoka Mody, Charles and Marie Robertson Visiting Professor in International Economic Policy at the Woodrow Wilson School, Princeton University.

Writes Mody:

An alternative resting stop on the way to ‘a more perfect union’ would be based on the recognition of a de-facto decentralisation in Europe. The financial costs of the crisis have been borne almost entirely at the national level; that is unlikely to change in the foreseeable future. The alternative resting stop would, therefore, seek to make decentralisation more robust rather than wish it away. A model would be a monetary union that resembles the United States before the Great Depression. Then there was virtually no system of fiscal transfers and states’ fiscal discipline was enforced by a ‘no-bailout’ commitment. The task for the euro area is to leverage sovereign authority where it exists: at the national level.

Mody’s paper is very interesting, and I hope it shall find an audience among the European ruling classes. The debate, he argues, should take place on more realistic grounds:

If a transparent system of transfers is not politically tenable, then a forward-looking euro-area economic architecture surely cannot be built on the premise of continued official loans that will eventually be forgiven
(…) Much of the guiding philosophy today – to render sovereign debt risk-free and to reduce differences in private borrowing costs in different countries – recreates the problems that led to the crisis.

Mody does not oppose a system of fiscal transfers on ideological grounds, but he notes that such a system is very unlikely to come in place, as a preference for maintaining national sovereignty remains strong among European governments and electorates. He also points out that "a fruitless search for integration has costs".

The European debate tends to be schizophrenic: prime ministers always preach "an ever closer Union," electorates react to Brussels’ indecisiveness by favouring euro-skeptic forces, Brussels appears as the right place for technocratic fixes rather than for a political come together (as European federalists wish).

Mody’s paper aims to suggest a new approach to European integration that focuses on decentralization "to improve economic incentives, the speed of response, and the democratic legitimacy of the Union." According to Mody,

These goals can be achieved by: (a) lightening centralised surveillance; (b) creating market discipline for sovereigns through a credible no-bailout mechanism; and (c) since it is particularly risky to await the construction of a banking union – because of incentives to push the hardest decisions into the future – national authorities should be encouraged to use their national bank resolution systems and pragmatic approaches to close down unviable banks.

(5 COMMENTS)

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