An introduction to the dynamic AD-AS model

And the IMF Said, Let There Be Data, and There Was Data: Private Capital Stocks in the Eastern Bloc · Econ Journal Watch : national accounts, investment and capital stock dataset, public capital stock, public investment, International Monetary Fund

From two graduates of the Suffolk University PhD program in Economics

And the IMF Said, Let There Be Data, and There Was Data: Private Capital Stocks in the Eastern Bloc

Abstract

The International Monetary Fund has recently published a dataset on public and private capital stocks for 170 countries from 1960–2015 using the perpetual inventory methodology. Following a reckless assumption, opaquely imposed, the dataset likely overstates levels of private investment as a percentage of total investment in former Eastern bloc countries, and thereby likely overstates their private capital stocks. This comment explores the nature and implications of the assumption, and suggests that, in light of the problem, the scope of the IMF project be significantly diminished to address the issue.

Read more here (PDF). 

The great Douglass North on the new Nobel winners in Economics

Beyond the models: Douglass North on Ostrom and Williamson's enlargement of the study of economics.


Hat tip: Organizations and Markets.

My review of Professor North's book, Understanding the Process of Economic Change, is available here.

Reaching the Zimbabwe standard

The nightmare of a default on U.S. Treasuries.

Prominent economists have starting considering a possible Treasury default, while the business-news media and investment rating agencies have begun openly discussing a potential risk premium on the interest rate that the U.S. government pays. The CBO estimates that the total U.S. national debt will approach 100 percent of GDP within ten years, and when Japan's national debt exceeded that level, the ratings of its government securities were downgraded.

Read the whole article, a brilliant analysis.

In praise of some inflation

Tyler Cowan on Scott Sumner's idea supporting a targeted inflation rate.

Goldman Sachs and moral hazard; Too big to fail

ORGANIZATIONS AND MARKETS:

"The business of political capitalism, that is. Like Enron, Goldman operates primarily in the nebulous world of public-private interaction. It is the US’s most politically powerful financial firm, skilled at navigating the byzantine regulations governing the virtually nationalized US financial sector. Goldman’s eye-popping $3.4 billion second-quarter earnings shouldn’t surprise anyone; as Craig Pirrong notes, these earnings reflect good old-fashioned moral hazard, with Goldman exploiting its too-big-to-fail status by taking on huge amounts of risk:"

Japan's 'lost decade" a lesson for U.S.?

Will Keynesians ever learn?

TOKYO — The Obama administration is committing huge sums of money to rescuing banks, but the veterans of Japan’s banking crisis have three words for the Americans: more money, faster.

The Japanese have been here before. They endured a “lost decade” of economic stagnation in the 1990s as their banks labored under crippling debt, and successive governments wasted trillions of yen on half-measures.

Only in 2003 did the government finally take the actions that helped lead to a recovery: forcing major banks to submit to merciless audits and declare bad debts; spending two trillion yen to effectively nationalize a major bank, wiping out its shareholders; and allowing weaker banks to fail.

By then, Tokyo’s main Nikkei stock index had lost almost three-quarters of its value. The country’s public debt had grown to exceed its gross domestic product, and deflation stalked the land. In the end, real estate prices fell for 15 consecutive years.

More alarming? Some students of the Japanese debacle say they see a similar train wreck heading for the United States.

“I thought America had studied Japan’s failures,” said Hirofumi Gomi, a top official at Japan’s Financial Services Agency during the crisis. “Why is it making the same mistakes?”

Destroying what is not seen

A little lesson in economics.

What to read if you want to understand the financial crisis

You should really know what you're talking about if you are very eager to declare the end of libertarianism. Thank you, Lynne Kiesling for a one-stop slam on the very smug Jacob Weisberg!

Professor Charles Whalen doesn't think much of libertarianism either.

Mass. high-tech exports on a bumpy road!

The slowdown impinges upon key Bay State sectors. Certainly this is something to watch.

The technology trade association AeA has released Trade in the Cyberstates 2008, its annual national and state trend report on global trade of high-tech products.

Compared to other states, Massachusetts ranks fifth in most high-tech exports in 2007, bringing in $8.7 billion — an almost 10 percent decrease from the $9.6 billion in high-tech exports the state gained in 2006. Leading the export sectors were industrial electronics, in which Massachusetts ranked third in the nation, and electromedical equipment, which the state is ranked fourth in the country. The report also found that Massachusetts high-tech exports added 30,300 jobs to the state.

The state’s $8.7 billion represents 35 percent of the state’s total tech exports. The leading destinations for state exports are Japan, Germany and Canada.

On a national basis, high-tech goods exported had decreased three percent in 2007, which marks 18 percent of the nation’s total exports. High-tech imports to the U.S. had increased 3 percent in 2007.

The next disaster

Robert Higgs: Social(ist) Security is next!

We should be worried about the solvency of Social Security. Yet many people are ignoring this timebomb.

Recently read: James Buchanan, Nobel Laureate in Economic Science (1986)

Worth reading: James Buchanan's essay "Socialism Is Dead but Leviathan Lives On" from Volume 1, The Logical Foundations of Constitutional Liberty.

Notable and quotable:

"The death throes of socialism should not be allowed to distract attention from the continuting necessity to prevent the over-reaching of the state-as-Leviathan, which becomes all the more dangerous because it does not depend on an ideology to give it focus. Ideas, and the institutions that emerge as these ideas are put into practice, can be killed off and replaced by other ideas and other institutions."

Think Putin, I suppose.

Leland Yeager's review of the volume is here.

Drug companies tend to be stupid

Not good public relations.

We are driving less!

Who would have thought that Americans would be driving less?

Why recessions are good for something....

Nobody likes a recession which means that few see the virtues of creative destruction.

Slide by slide into the subprime mortgage slide!

The Subprime Mortgage Mess explained in pictures. It's a basic lesson in economics. The slide show posits another lesson, in my humble opinion: don't trust the "quants" on Wall Street.

Hat tip: Greg Mankiw

Post-Iraq America, bankrupt?

The Democrats have a big wish list. The Republicans have lost their credibility on spending; the Democrats never had any they accepted voluntarily. Remember divided government put Clinton in the box. And the hot technology unleashed under his watch played a big part.

Is the personal savings rate that important?

Some economists worry about the nation's personal savings rate. However, others suggest there may be more to savings, properly understood, than we've been told.

Many of the obvious concerns about the negative personal saving rate may be unfounded. The negative value could be attributable to preliminary data, which the BEA could very well revise upward; a temporary depressing effect brought on by higher energy costs; and a dampening effect owing to the surge in corporate share repurchases. Looking at the private sector on a consolidated basis, we find that saving, while quite low, is certainly neither negative nor remarkably lower than it was in the late 1990s. National saving as a whole has also been low, but it has not fallen recently—indeed, the broadest measure has edged up. Despite the low personal saving rate, aggregate household wealth has risen sharply in the past few years. U.S. households would not be a lot wealthier today—and thus better able to cope with a decline in asset values—if they had been saving at a substantially higher pace over the past few years. Furthermore, we uncover no strong evidence to suggest that low personal saving today would be associated with lower spending growth tomorrow. Nevertheless, there are reasons to be concerned about the modest levels of household, private, and especially national saving. National saving flows provide the basic wherewithal to finance U.S. ownership of productive assets. Unless the nation’s investments are unusually productive, low saving levels will ultimately imply a slowdown in the growth of income from capital, and thus work to reduce the quality of U.S. living standards over the long run. Households might then be faced with a painful choice: Respond to slower income growth by accepting slower consumption growth than has been the historical norm—or continue normal consumption growth, which could put additional downward pressure on saving and thus jeopardize income and spending even further into the future.

Today is F.A. Hayek's birthday

Today is Hayek's birthday.

For a primer on this great classical liberal and Nobel prize-winning economist, consult that byproduct of spontaneous order, Wikipedia

Wish I could be there, today at Sanders Theatre: Barro on Friedman

Robert Barro lectures at Sanders Theatre on Milton Friedman. I hope someone records this.

Mankiw updates with a post to Barro's paper on MF.