Category Archives: miscellaneous

Feb 18 0 comments
economics, miscellaneous

Walgreen’s Buys a Small Chain

And not one of those cheap chains either. Walgreen’s buys Duane Reade. Here’s The Curious Capitalist on the issue:

Duane Reade was a ratty little downtown cut-price operation until management decided that the key to drug retailing isn’t service—theirs was awful — but location. In the great space race of the last decade Duane Reades began to spring up everywhere there wasn’t a new bank branch going in. Result: there are 257 Duane Reades but independents got squeezed out. [link]

It’s a $1.08b deal, but almost half of that is Duane Reade’s debt.

Jan 28 0 comments
miscellaneous

RIP J.D. Salinger

J.D. Salinger, author of such classics as Catcher in the Rye and Franny and Zooey, has died.

Mr Salinger died of natural causes at the compound in New Hampshire where he had hidden from view since 1953, declining attempts to turn his novels into films, refusing to repackage his short stories in anthologies, deterring biographers and suing the author of an unauthorised sequel to his best-known work. [link]

Apparently, his estate will still not allow any adaptations of his work, according to his wishes.

Jan 08 0 comments
miscellaneous

Don’t Do It!

Don’t get a Ph.D. in the humanities, that is. Unless you fulfill one or more of the following criteria:

  • You are independently wealthy, and you have no need to earn a living for yourself or provide for anyone else.
  • You come from that small class of well-connected people in academe who will be able to find a place for you somewhere.
  • You can rely on a partner to provide all of the income and benefits needed by your household.
  • You are earning a credential for a position that you already hold — such as a high-school teacher — and your employer is paying for it. [link]

A great article in The Chronicle of Higher Education by Thomas H. Benton, which happens to be the pen name of William Pannapacker, an associate professor of English at Hope College.

Jan 08 0 comments
miscellaneous

Happy New Year

I know there are a few regulars (thanks, mom!), so welcome to the new year, the new theme and the new name. I’m trying to get trendy here (is that even possible?).

Happy New Year to all.

Feb 06 1 comments
assignments, course-related, economics, handouts, miscellaneous, today's class

The Real Exchange Rate: Two Handouts

I think I have discovered (thanks to several students who pointed it out to me yesterday) the source of the confusion that is causing you a lot of consternation. The problem lies in the notation of the real exchange rate. Specifically, it seems that the text book and the study guide use a notation that is different from the one I was using in my slides. If this is the case, then – for the sake of consistency – I will go with what’s in the book.

To that end, I’ve edited the necessary slides in Lecture #5. I’ve also written up a short handout and using an example of a European price increase, illustrated how we get to what is “foreign” and what is “home” when it comes to calculating the real exchange rate from the nominal exchange rate. Please see the ‘Handouts’ section on the right.

For the sake of the exam, I think it’s important for you to qualitatively understand what happens where, and which currency becomes more expensive and less expensive, rather than focusing specifically on what is “home” and what is “foreign.” Nevertheless, if this is something that’s in your head, nagging you, as it has been for me, then read my write-up.

I also dredged up a handout that’s written by an IMF economist (Luis A. V. Catão) about the basics of the real exchange rate and purchasing power parity (PPP). We’ll soon be talking about PPP, so it won’t hurt to take a look at what Catão has written up. He starts by questioning: How do we value a currency?

George Soros had the answer once—in 1992—when he successfully bet $1 billion against the pound sterling, in what turned out to be the beginning of a new era in large-scale currency speculation. Under assault by Soros and other speculators, who believed that the pound was overvalued, the British currency crashed, in turn forcing the United Kingdom’s dramatic exit from the European Exchange Rate Mechanism (ERM), the precursor to the common European currency, the euro, to which it never returned.

This is, of course, not the best way to value a currency, but certainly a great way to make a point (so long as you have $1b to make bets against currencies). So Catão introduces a RER index which he calls the real effective exchange rate or the REER, which is defined as follows:

The REER is an average of the bilateral RERs between the country and each of its trading partners, weighted by the respective trade shares of each partner. Being an average, a country’s REER may be in “equilibrium” (display no overall misalignment) when its currency is overvalued relative to that of one or more trading partners so long as it is undervalued relative to others.

This is one way to measure whether purchasing power parity exists, and if it doesn’t, the direction that the nominal rates will move to adjust towards it. It’s important to remember that, as long as markets are free, nominal rates will move towards purchasing power parity. This goes back to the example of Kenyan coffee that I had talked about in class. If coffee is cheaper in real terms in Kenya than it is in the US, ignoring transportation and other costs, people (or arbitrageurs) will buy coffee en masse from Kenya and sell it in the US, driving coffee prices up in Kenya, and down in the US, so that PPP will ultimately exist between Kenyan coffee and US coffee .

This also forces us to think about the real exchange rate not just as the nominal rate without inflation, but as a measure of PPP. More on this when we get to revisit exchange rates in our flexible-price model. At that point, we can also take a look at The Economist’s Big Mac Index.

While this is all fun stuff, I don’t know about you, but I suddenly feel like having a burger and some coffee…

Jan 21 0 comments
course-related, miscellaneous

Welcome Spring 2009 Students

I notice some of you have already been frequenting the site. I hope that you find something of interest here.

I’ve uploaded some resources onto the site already – this includes the syllabus, the rough course schedule and this week’s lecture slides.

As I mentioned in class, the slides are just a skeleton to follow what’s going on as I lecture and should NOT be used as a sole studying resource. That’s what the text book is for. I would also recommend exploring the text book website, which is linked to on the right.

I think it’s going to be a good semester and I encourage you to keep on asking questions and interacting as you did yesterday.

Welcome!

Jun 24 0 comments
macroeconomics, miscellaneous

Who Said Macroeconomists Can’t Run Experiments?

Last week’s Economist talks about the virtues of using randomized trials to answer macroeconomic policy questions. Randomized trials are similar to drug trials, where you select a random group of people to test an idea along with a control group on which you test something else. They talk about an experiment done in western Kenya, in the distribution of bednets going towards malaria eradication:

…researchers looked at what happened in 20 antenatal clinics in western Kenya when some gave away insecticide-treated bednets, an anti-malaria therapy, and others sold them for different prices. Their conclusion was that free distribution is far more effective in getting people to use bednets than charging even a nominal sum would be. [link]

That argument for charging people for this is simply that if people pay for something they will value it more. Of course, nothing is as it seems, and it turns out that in the part of the country that they were given away people already owned millions of bednets, so the value was already known. Furthermore, most of the recipients were pregnant women – which is good – but if you want to eradicate malaria then you want them to be universally distributed. So we are back to Square One. The experiment worked in this part of the country, but is it worthwhile to distribute bednets across the nation? Unknown.

This is of course a problem of random selection. Listening to Terry Gross’ Fresh Air on NPR the other day, I heard an interview with Elizabeth Pisani, an epidemiologist who is battling AIDS across the world. She was telling the story of a survey done by her group in Southeast Asia, to find out the average number of clients that prostitutes got per week. They were surprised by how low the numbers were – something like three per day (if I remember correctly).

Speaking later with another prostitute, she found out that the women she interviewed were so-called “dogs”. The very fact that they were available to be interviewed by her team showed that they were not in high demand. This skewed the numbers downwards. When they randomized it a little more, by asking different women at different times and so forth, they got much higher numbers. Here’s the show, if you want to listen to more.

Perhaps if there is enough research done into a particular culture/country/region to ensure that the trials will be truly randomized then one might be able to claim that macroeconomists can also run experiments, just like microeconomists. Then again, who was it that said that all macro is micro, anyway?

May 04 2 comments
course-related, economics, guest post, miscellaneous

After All, Maybe Money Does Buy Happiness?

By Aaron Ordower

In last week’s NY Times David Leonhardt discusses a new study published by the Brookings Institute which refutes the Easterlin Paradox which stated that money doesn’t necessarily lead to more satisfaction. See Arnav’s earlier post for more on this perspective.

The study’s authors looked at a number of new studies in the past 34 years which allowed for a more comprehensive look at the question, and they decided that in fact, income does matter.

But what I thought was really interesting was when the NY Times wrote,

Economic growth, by itself, certainly isn’t enough to guarantee people’s well-being — which is Mr. Easterlin’s great contribution to economics. In this country, for instance, some big health care problems, like poor basic treatment of heart disease, don’t stem from a lack of sufficient resources. Recent research has also found that some of the things that make people happiest — short commutes, time spent with friends — have little to do with higher incomes. [link]

An interesting parallel comes from the world of psychology where Maslow’s hierarchy of needs shows that people have a pyramid of needs to be filled, starting with the physiological, safety, love, all the way up to self-actualization. The higher up on that pyramid, the happier people are.

Now take a look at the map plotting GDP and happiness. There is largely a positive relationship between the two, which is to say that GDP and happiness are obviously related in some way. However, the countries with the highest levels of happiness are those with the most socialized governments with plenty of services provided by the state.

Not surprising, the Scandinavians ranked highest on this chart, but look at Canada and even Venezuela, which rank higher than the United States in terms of happiness. Canada, demographically and economically very similar to the US ranks higher, which I argue is because Canadians do not have to worry about those lowest levels of Maslow’s hierarchy. In a number of areas, the Canadian government takes care of its citizens’ needs (healthcare, education) so the average Canadian is not concerned by these issues which are essential to achieving higher levels of personal satisfaction, according to Maslow. It also doesn’t hurt that Canadians, by and large, are really nice people. Looking at psychological or sociological factors such as these tell that while Americans have more worries, our neighbors to the north are comfortable because they have the security blanket of a welfare state.

Apr 19 2 comments
course-UNrelated, miscellaneous

Pathetic

Stephen Hadley, the National Security Adviser, was on ABC’s This Week with George Stephanopoulos. Apparently, he doesn’t know the difference between Nepal and Tibet.

Discussing how Bush has “no reason not to go” to this summer’s Olympic games in Beijing and how boycotting them would be wrong, Hadley discussed the outcry over Tibet and the US response, only he kept saying Nepal.

“If countries are really concerned about Nepal, we shouldn’t have this sort of non-issue of opening ceremonies or not. They should do the hard work of quiet diplomacy to urge the Chinese government — in their interest — to take advantage of this opportunity to do something,” Hadley said. [HuffingtonPost]

I don’t know what’s more pathetic. That the National Security Adviser doesn’t know the difference between the two countries, or the way the New York Times deals with the issue. From Sepia Mutiny, a blog dealing with South-Asian issues:

Yes, Hadley is clearly referring to Tibet in context, and the two countries are in the same region. But if the national security advisor was to confuse Saudi Arabia with Iran, that would be news worthy, wouldn’t it? How about China and North Korea?

However, when he confuses Nepal (an independent country emerging from a dictatorship by a Hindu ruler) with Tibet (a conquered country under a communist dictatorship), the NYT buries the mistake at the very end of their article, mentioning in passing that the White House has confirmed that Hadley “misspoke”. [SepiaMutiny]

The way this administration is dealing with foreign affairs, it’s no wonder that populations in the Muslim world have increasingly “unfavorable views” of the United States. From this week’s Economist:

Apr 15 0 comments
course-related, economics, miscellaneous

Happiness is…a Higher GDP

Several have argued against using the GDP as a measure of economic well-being. Starting with the Bhutanese king’s suggestion of measuring Gross National Happiness, to the UN’s Human Development Index up to some economist’s suggestions of measuring garbage production as a measure of well-being. The French president seems to feel strongly about it, and is taking serious measures to find a substitute. From Time:

…Sarkozy, …early this year appointed a high-powered task force–boasting not just one but two economics Nobelists, Amartya Sen and Joseph Stiglitz–to devise a GDP replacement. Similar “ditch-GDP” noises can be heard frequently from enlightened sorts who care a lot about the environment, health care, education and happiness. [link]

The usual criticisms apply – until something that’s as consistently, easily and reliably measured as the GDP is found, it will be hard to change people’s minds about it. These are all outlined in the article. It is interesting to note though, especially for critics who claim that happiness doesn’t grow with GDP, that GDP growth is, in fact, closely linked with higher well-being.

…the recent explosion in happiness surveys has enabled a soon-to-be-published reappraisal by the University of Pennsylvania’s Betsey Stevenson and Justin Wolfers, who find that happiness tracks per capita GDP pretty closely. Money really does matter. GDP does too. [link]