tag:blogger.com,1999:blog-11486411044144391072024-02-19T01:05:29.055-08:00The Khaki Economistjavagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.comBlogger51125tag:blogger.com,1999:blog-1148641104414439107.post-12472056655345590622011-09-26T07:38:00.000-07:002011-09-26T07:39:39.464-07:00New blogI have started a new Khaki Economist blog at <a href="http://www.khakieconomist.com">www.khakieconomist.com</a>. Please follow!javagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com0tag:blogger.com,1999:blog-1148641104414439107.post-31537718305957614002010-01-09T17:57:00.000-08:002010-01-10T08:39:02.822-08:00Soccer in MexicoMexico does most things pretty poorly. But that's the topic of my next post. This topic is about something Mexico does pretty well: fútbol. <br /><br />Last night, I went to see the pre-season so-called "Tapatíos" match, that is, between the two biggest Guadalajara-based (Tapatío) teams, Chivas (Goats), and Atlas. <br /><br />The match itself was about the same quality as A-League matches, which means `pretty low'. However, I enjoyed the match immensely more than I do most A-League matches. I think there were a few specific reasons: <br /><br />-having two teams from the same city means there can be a noisy contingent of fans from both sides. It's good to see the A-League admitting second-team franchises from Sydney and Melbourne. <br /><br />-A more liberal allowance of drums and musical instruments. They create atmosphere, which is a clear substitute for the quality of the game. <br /><br />-Roving booze/food salespeople. <br /><br />-Much better half-time entertainment. They had teenagers in jumpsuits running a Gladiators-ish obstacle course, which was genuinely funny--and perhaps more interesting than the soccer. <br /><br />Unfortunately, Chivas, the team which I bought the jersey of, lost 0-1.javagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com1tag:blogger.com,1999:blog-1148641104414439107.post-28244003619688030332010-01-06T19:04:00.000-08:002010-01-06T19:34:17.474-08:00Making (special) Znoud el-Sit in MexicoIt started out a fairly simple task: I wanted to make for my new, extended family, my favourite Lebanese sweets---Znoud el-Sit. For those unacquainted with them, they are pure bliss. They are filo pastry wrapped around clotted cream, deep fried and drizzled in rose-water sugar syrup. <br /><br />Easy, I thought. <br /><br />The first problem I found was that filo pastry is not available in Mexico. They have no Turks, Greeks, Maltese, Italians, French, or Pan-Slavic people here. This meant I had to make filo pastry. It takes a five year apprenticeship to make good filo pastry, and with my limited (I read three recipes, and watched two YouTube how-tos) training, I failed miserably. The best description of my "sheets" of filo pastry would be "dough". <br /><br />The second problem was that Ashta, or Lebanese clotted cream, is not available in Mexico. This meant I had to make it myself. This wasn't a complete failure. The instructions are pretty easy: take 5 tins of Carnation Milk, two tablespoons of flour, and simmer, stirring, for five hours. <br /><br />Having wrapped my dough around my ashta, I deep fried them (they looked like pigs feet), and took to making the sugar syrup. That was meant to be easy. Sugar, water, rose-water. Unfortunately, rose-water is not (really) available in Mexico. Resigned to this fact, I made my sugar syrup the old fashioned way--just sugar and water. <br /><br />Susana's mother, though, rocked up, just as I'd finished the sugar syrup. She had rosewater!<br /><br />In Mexico, rose-water isn't used in cooking so much as it's used in cosmetics, as a skin-cleanser. The bottle she brought was almost a litre, so I stirred in a few capfuls, and poured them on top of the Znoud, garnishing with crushed pistachios (available in Mexico). <br /><br />It was then, having spent no fewer than 8 hours preparing this horrible meal, that I thought to taste the sugar syrup. I dipped in my finger, and gave it a good lick, only to bend over gagging: the rose-water was almost half soap. <br /><br />Nonetheless, I served the (cleansing) Znoud to my new family for Christmas dinner, and several went for seconds. One asked for the recipe--I wonder what she'd have done if I explained the secret ingredient?javagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com0tag:blogger.com,1999:blog-1148641104414439107.post-74348789164549466522010-01-05T08:25:00.000-08:002010-01-05T08:33:43.877-08:00Buying brides in MexicoIn Timor, a few years back, some of the locals told me that bride-selling was pretty much the norm. If you wanted to marry someone´s daughter, your parents would have to pay her parents the bride price, normally in livestock. This served as a massive incentive to have daughters. And often having daughters led to having sons. <br /><br />In Mexico, there is no bride selling by families (fortunately: the price on Susie´s head would likely be beyond my budget). However, the custom has been taken up by the immigration ministry, who demand $2658Pesos from foreigners for a ¨license¨ to marry a Mexican. <br /><br />This seems a hugely efficient tax. Demand for Mexicans spouses, presumably, would be very inelastic to the price of this license. I, personally, would pay double that for Susana, or triple. <br /><br />In one of my many questions for the Mexican bureaucracy, I ask: how did they come up with the bride price of $2658?javagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com0tag:blogger.com,1999:blog-1148641104414439107.post-66279073998178725462010-01-03T01:21:00.001-08:002010-01-03T12:22:00.798-08:00Paul Romer, Town Planning, and Eating Gays in the Land of the Deep-Fried TacoSorry guys, the first post of this didn't contain the links. <br /><br />-----------<br /><br />Dear Friends & Colleagues,<br /><br />Two weeks ago, I went to see The Brothers Bloom in a Mexican Cinema. In Mexico, most Western films are released in both subtitled and dubbed formats; people with thick-rimmed glasses and skivvies overly attend the subtitled sessions, and those with pick-up trucks choose the dubbed sessions. For me, the only memorable part of the film [two and a half stars], was when one brother Bloom said to another brother Bloom "I don't want to impugn an entire country, but Mexico is a terrible place". All the political science students in their berets giggled, nervous, and offended, but unwilling to not get the joke. They knew that fifteen thousand people have been murdered here <a href="http://www.project-syndicate.org/commentary/castaneda27/English">since President Calderón stupidly declared war on the drug cartels</a>, but are also tired of <a href="http://images.google.com.mx/imgres?imgurl=http://www.nicholsoncartoons.com.au/cartoons/new/2009-05-09%2520Donald%2520McGauchie%2520axed%2520joins%2520Sol%2520Trujillo%2520600.JPG&imgrefurl=http://www.nicholsoncartoons.com.au/cartoon_6538.html&usg=__et8uGtQ37LFqCxc5LHiRyKTQesY=&h=386&w=600&sz=51&hl=es&start=4&sig2=rU6xgpAxJJCbmDJNLdXfjA&um=1&tbnid=Ebp9PHOPEGcObM:&tbnh=87&tbnw=135&prev=/images%3Fq%3Dcartoon%2Bsol%2Btrujillo%26hl%3Des%26client%3Dfirefox-a%26rls%3Dcom.ubuntu:en-US:unofficial%26sa%3DN%26um%3D1&ei=h5sxS5WtBpzutgP28qTyBA">being the butt</a> of supposedly affectionate jokes in the west. Being proud of being Mexican is difficult.<br /><br />Mexican national pride, from what I can reckon, is based on cuisine, custom, and saying "bugger off" to the Spanish, one hundred and ninety-nine years ago. In 1810, a charismatic priest called Miguel Hidalgo y Costilla, irritated by the authorities in Madrid ordering private vineyards destroyed, including his (they would threaten the Crown Monopoly), raised an army and <a href="http://books.google.com.au/books?id=-cZC2wYXUfQC&lpg=PT126&ots=g36lkL4q3Z&dq=miguel%20hidalgo%20virgin%20birth&lr=&pg=PT141#v=onepage&q=&f=false">took the silver-mining town of Guanajuato</a>. His attempt at gaining Mexican independence was immediately unsuccessful---the Spanish shot him in Chihuahua, then cut off his head and put it on a spike in front of the grain warehouse in Guanajuato (for a decade, to let the message sink in). Eleven year later, though, Hidalgo's "bugger off" resonated with a greater proportion of those in power, and Spain ceded control.<br /><br />After seeing the film, Susana and I visited <a href="http://en.wikipedia.org/wiki/Guanajuato,_Guanajuato">Guanajuato</a>, staying in a hotel metres from where Hidalgo's head was. The town itself is unlike the rest of Mexico; it seems to have `got it together'. It is a tourist town in the purest sense. Throngs clog its cobblestone streetlets for the permanent carnival atmosphere, take tours of the dungeons, castles, and silver mines, or drink tequila in the lane-way bars. It is a lucky town, with something to sell: picture the Warrumbungles, minus the trees, with all the seventeenth century pomp of a pious European city, glued together with the walkways, parks, and restaurants of Sydney's The Rocks, in permanently mild weather. The physical beauty, however, is not the sole reason to go to Guanajuato. For Mexicans, visiting the town is an escape from their dirty, industrial Mexico, where pedestrians give way to cars that give way to trucks. In Guanajuato, pedestrians have de facto right of way; cars get around in their underground cobblestone tunnels, and there are no trucks. Guanajuato exists in a different kind of normal.<br /><br />Normal, unsurprisingly, is a fairly important concept in development economics. As <a href="http://www.esquire.com/features/best-and-brightest-2009/world-poverty-map-1209">pointed out by Daron Acemoğlu</a>, an important development economist, Mexico´s normal is comparatively dismal:<br /><br /><blockquote>"On one side of the border fence, in [Nogales,]Santa Cruz County, Arizona, the median household income is $30,000. A few feet away[, in Nogales, Sonora], it's $10,000. On one side, most of the teenagers are in public high school, and the majority of the adults are high school graduates. On the other side, few of the residents have gone to high school, let alone college."</blockquote><br /><br />Economists call the different versions of normal that exist on either side of the fence bordering Arizona and Sonora institutions. Institutions are not schools, or hospitals (unless they are), but the shared common accepted rules between a group of people. Kissing hello is one institution. My lentil burgers are another. Today I saw a fantastic example of a proud Mexican institution: a bus had been pulled up by a motorcycle police-man, for running a red light. Underemployment in Mexico is around the quarter of willing workers, and the driver---knowing that he could be easily replaced---"fixed" the policeman right there, five metres from Susana and I.<br /><br />It has been a source of constant fascination for me how the physical layout of a city can influence these institutions, and how they become re-enforcing. Guadalajara, for example, is a big city--about the size of Sydney--and has about the same quality of roads and transport as Sydney would if no maintenance work was carried out for 5 years or so. The size, coupled with the presence of plenty of heavy industry and cheap petrol, means the pick-up truck (American style, not the more efficient Japanese type), is omnipresent. In many industries, owning a pickup-truck can be the deciding factor in one's employability. These factors further result in traffic problems, road damage, and a potential enormous "friction" when Mexico eventually faces a real oil constraint.<br /><br />But pick-up trucks are not a bad institution per se, and nor are sprawling cities necessarily riddled with corruption and "isolated communities". There is something else going on.<br /><br />If I were to have to pick a single metric for development, it would be the level of maintanance of the space between a road and houses. Certainly, poor footpaths do not cause a poor society; in contrast, they are the weather-bell of development. In general, people look after their houses. It has ceased to surprise me that in supposed "slums" one can find well-maintained dwellings with more mod-cons than I had in my Brunswick share-house. Similarly, in some of the poorest parts of the world, I have travelled on beautiful, smooth roads (I admit, fairly infrequently).<br /><br />People take care of their houses because they stand to directly benefit from it: economists say their time spent housekeeping is consuming a "private good", in that others cannot freely consume it. Roads (public goods) are a different story. In general, good roads only happen in places where those who stand to benefit from the roads have some power or economic importance (ie. farming districts, or infamous smooth-highways-to-the-<br />governer's-house examples). Footpaths, though, are a necessity only for the marginalised (the blind, the crippled, and the old), and it is no surprise their existence, let alone quality, is the marque of a society that has got it together.<br /><br />More geekily: the existence of high quality footpaths indicates that people implicitly care about the existence of footpaths (a public good) almost as much as their own houses, and do this either by taking care of the footpaths themselves, or paying a tax in order to have an administrator do it for them. This general idea--that development occurs due to institutions equating perceived private returns with public returns--is fairly central to the work of <a href="http://nobelprize.org/nobel_prizes/economics/laureates/1993/north-lecture.html">Douglass North, who won the Bank of Sweden (Nobel) Prize for economics in 1993</a>, and who all economics students should be forced to read.<br /><br />Footpaths are, of course, fairly insignificant in the scheme of things, but they are a good allegory for public good-provision in general. The people of Guanajuato (and their clean streets, which are, incidentally, primarily cleaned by the residents, not council) left me with something to think about: they care for their footpaths because the rest of Mexico would judge them harshly were their streets filled with litter (the norm in Mexico). Why is there not the same degree of shame attached to Mexico's other ills: drug crime and corruption? If Landscape Architects and Urban Planners have the capacity to engineer our emotions to accept ownership of land that is not ours, and treat it as so, is it not the task of economists and other policy-makers to figure ways to attach popular sentiment (and more importantly, action) to behaviour in the public good?<br /><br />An interesting thinker on the topic of Cities and Institutions is Stanford Professor Paul Romer, whose <a href="http://chartercities.org/">Charter Cities</a> idea has been quite a hit this year. The general concept is this: poor countries' governments have proven to be fairly bad administrators, for whatever reason; similarly colonialists didn't do a really flash job managing the same countries either, and so re-colonising countries is not a palatable option. However, cities are a fairly proven method of improving livelyhoods, and most cities in rich countries are run well. It follows that if rich countries were to establish cities and allow people from poor countries to populate them (accepting the rules and institutions of the city), everyone would benefit. The best example of this sort of thing, historically, is Hong Kong, which was administrated by the UK until 1997, and is one of the most prosperous cities on the planet. <a href="http://chartercities.org/concept">Here are a list of candidates proposed by Romer.</a><br /><br />On balance, I think the idea is a fantastic one, though not without some flaws, which I'll write on another time. My biggest criticism is, so far, the lack of detail of what a charter city would look like. I would not say that contemporary suburban design inspires "ownership" of a city in the way the nooks, hills, and churches of Guanajuato do. Urban design can, simply, make the job of instilling good institutions easier.<br /><br />To get a better idea of the so-called "International Best Practice" in urban design, I plan to go this year to the Shanghai Expo 2010. I will likely go in July, if the Treasury wants to give me some time off. If you're interested in joining me, shoot me an email.javagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com5tag:blogger.com,1999:blog-1148641104414439107.post-81728592858688381252010-01-02T22:04:00.001-08:002010-01-02T22:28:00.779-08:00Mexican Food and LanguageThis year, while trying to write a thesis, I put on almost 10kg. After a few of my closest friends made a few comments ("Jim! You're looking so... portly!") I went on the CSIRO diet with my parents, and lost almost all of it. That was before coming to Mexico. <br /><br />The Mexicans, I can safely say, are a fat bunch. Among the hundreds of pieces of mother-to-daughter knowledge that are passed down (bi-carb in the fridge keeps the smells away; bless yourself in front of a church or be condemned to hell; cut--don't rip--the plastic bag you put in the tortilla maker, etc.) the link between fat content of food and the fat content of people has not been made. <br /><br />In contrast to the CSIRO diet---which is easy, tasty, and removes almost all fat and carbs from the diet---the Mexican diet consists of tortillas (carbs), melted cheese (min. 40% fat), and fibre (beans), give or take some cilantro, onion, lime and chili for <span style="font-style:italic;">savor</span>. Every meal is washed down with soda. It is no surprise the former CEO of Coca Cola here, Vicente Fox, became president: it wasn't a great increase in influence for the man. <br /><br />Needless to say, I'm losing the fight of keeping that weight off. <br /><br />I am, though, happy to report that my Spanish is improving, slowly. Learning a language is a difficult process, especially when there are small differences between the innocent and offensive. I recall a good friend of mine, from Russia, once asking a female tram driver "Does this tram go to St Kilda Bitch?", and buying a "bottle of cock" from 7/11. <br /><br />My 7/11 experiences have been no better. For the first two weeks, at every store I visited, I asked the price of the store attendant "¿cuánto cuestas?" where I should have asked for the price of the product "¿cuánto cuesta?"<br /><br />After spending a while scrubbing myself up (I needed scrubbing) to go to Sue's Uncle's new gay club, I stood in front of her family and proudly announced "Yo como un homosexual", in place of "Yo parezco como un homosexual". The latter translates as "I look like a gay", and the first as "I eat a gay".javagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com0tag:blogger.com,1999:blog-1148641104414439107.post-58296096953260457632009-12-12T21:00:00.000-08:002009-12-12T21:30:03.390-08:00High points of the last weekThis is the end of my first week in Guadalajara. Here are the high points: <br /><br />1. Last night I went to the opening of Susana's uncle's new gay club, Velvet. It was fun, though not my scene (something about being straight). We also went to Circus, one of his other gay clubs. It was far more grungy, and a lot more my style. <br /><br />2. Today, I was making some gnocci and prawns, which required rosemary and basil. Susana's mother is basically a disinfecting machine (apparently it's a common Mexican trait). She scrubbed and disinfected the rosemary and basil. There is no chance of me picking up any bugs here. <br /><br />3. I went with Chewy, Susana's brother, to the wholesale markets. These markets put Melbourne's to shame. There are stores which sell nothing but onions, by the tonne. Others sell just piñatas. A fantastic experience. <br /><br />4. We bought some wedding rings.<br /><br />5. Books started this week: <br /><br />Boswell: life of Samuel Johnson<br /><br />Dambisa Moyo: Dead Aid<br /><br />Gareth Evans: Responsibility to Protect<br /><br />Freakonomics (Thanks, Dean!)<br /><br />And I've finally hit the second half of David Kilcullen's The Accidental Guerilla. I will write a review of it next week.javagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com1tag:blogger.com,1999:blog-1148641104414439107.post-21557686081813944102009-12-11T10:57:00.000-08:002009-12-11T11:47:22.798-08:00Lost in translation: 1At Walmart yesterday, we were cruising the DVD aisles, when I came across the most splendidly translated film title: Grease, translated to `Vasolina´. <br /><br />When I think of Grease, I think of machinery, slick hair, and sex. When I think of Vaseline, I think of chaffing on babies' bottoms.javagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com0tag:blogger.com,1999:blog-1148641104414439107.post-58718356251275550062009-12-07T15:46:00.000-08:002009-12-07T16:03:48.817-08:00First impressions of GuadalajaraI arrived in Guadalajara yesterday, after a stopover in LA. I've been to neither city before, so it's been a couple of days of exploring for me. <br /><br />There is something funny about being away from your home city. I first encountered it when I moved to Melbourne. Even as an Australian, I found it amazing how many people would talk to me on trams and trains, and wrongly concluded that all Melbourners love talking on public transport. <br /><br />Of course, the phenomenon really is that people (in general) enjoy showing off their cities---and I, apparently, seem to have a big sign hanging around my neck saying "foreigner". My day in LA was marked by arguing over steak about health care reform in the US, and being asked to attend (and attending) an art opening at the LACMA. <br /><br />From the 50 or so people I spent the day talking to, I've figured that, essentially, LA-ers (I can't say "Californians", let along "Americans", because LA-ers think of themselves as being different) are a fairly friendly, well educated, and politically aware bunch. They also speak in exactly the same vernacular as in the movies. I wasn't sure people actually said "son-of-a-bitch retard", but that was the description of a driver I heard a policeman shout out. <br /><br />I found LA more or less as I expected. I went to Downtown, Hollywood, Westwood, and Santa Monica. All but Santa Monica struck me as kind of revved-up versions of Paramatta, which is not being endearing. Santa Monica was just a big St Kilda (some may find that endearing, others won't). The people also smell of fairy floss.<br /><br />Guadalajara is a great city. It's big, messy, smelly, industrial, and fun. The centre is full that wonderful colonial grace you would expect. The fun, though, comes from being with Susana's family. Her father is one of 14, and every Sunday, they cook and eat a lot of food. Since that's more or less how I like to roll, I think I'll fit in, as soon as mi Español improves. <br /><br /><br />Cheers, <br />Jimbitojavagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com0tag:blogger.com,1999:blog-1148641104414439107.post-16203808583547476472009-12-03T21:56:00.000-08:002009-12-03T22:03:26.316-08:00I've been slackI've not posted anything lately. Between camping and marking, I haven't had the time to have an opinion, let along think or write about it. <br /><br />That all changes today. Tonight, I leave to go to the States, Mexico, and Cuba, from which I will file a weekly KE column. I'll be there for almost three months. <br /><br />Following that, I'm off to work in the Macroeconomic Group of the Treasury, on climate abatement modelling. Depending on the nature of the job there, I may have to give up writing all my nonsense. Half-yer-luck!javagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com0tag:blogger.com,1999:blog-1148641104414439107.post-27519157376054477282009-11-21T04:21:00.000-08:002009-11-21T04:55:27.598-08:00Golf, Graphs, and Government: a problem with using econometric studies as bases for policy developmentOn Friday, I sat in on an interesting seminar presentation by <a href="http://www.business.uq.edu.au/display/teach/Renee+Adams">Pr. Renée Adams</a> of UQ, on the potential consequences of bank representation on Federal Reserve bank boards in the US. <br /><br />Her paper, which has been a continuing work over a decade or so, looks at how the market digests the news that a director of a particular bank gets voted to a Fed board (there are twelve in the States). Unsurprisingly, big banks, and those with more assets, are better represented on Fed boards, and the market digests the news favourably. <br /><br />The two reasons she supposes explain this are (1) the election of a board member to a Fed board is a vote of confidence in the bank, and (2) board members may be privy to better information, improving the competitive position of the bank. The second, more malignant explanation is not without some appeal: <a href="http://en.wikipedia.org/wiki/Stephen_Friedman_(PFIAB)">Stephen Friedman</a> was simultaneously on the boards of the FRB of NY and Goldman Sachs during a time when the TARP programme had AIG pay some $8B of debt back in full to Goldman Sachs (along with paying back other creditors in full), despite the fact it had been negotiating the principle down in the period before government involvement. While Friedman has not been shown to be in any way linked to this, it certainly raises questions about who is playing golf with whom. <br /><br />A key problem with the kind of findings Prof. Adams has, is that they cannot distinguish between the permissible (reputation) and fishy (perceptions of insider information) causes for stock price movements. This in turn weakens any argument which could be generated from such work, detracting from its potential impact in terms of policy. <br /><br />Economists are overly suspicious of ethnographic studies for being lacking in hard, testable data. There are plenty of situations, however, where such studies have plenty of merit. If 99 bank directors on FRB boards behave well, but 1 does not, an econometric study will not conclude that bank directors behave badly, which is good--in this case, they normally don´t. An ethnographic study, however, will focus on the poor behaviour of the one director.<br /><br />For researchers, the decision on whether to use an ethnographic method---and I think this will certainly increase in the coming years---will really depend on how much faith they put in the precautionary principle. Is the studs-up behaviour of the one director cause enough for changing the rules?javagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com0tag:blogger.com,1999:blog-1148641104414439107.post-69839764524157595782009-11-17T04:24:00.000-08:002009-11-17T04:33:58.523-08:00Reasons I'm marrying the right woman #792A few weeks ago, Susie sent me an email wanting to know how to write in LaTeX. She liked the look of my documents, and thought her papers would look better if they were properly typeset. <br /><br />I wrote a little how-to-get-started guide for her, with a couple of screen-shots, explaining the basic stuff. I thought, if she was really keen, she'd read one of the real manuals. After that, I didn't hear much, and assumed she must have given up on the whole thing---she is, after all, researching security and strategy, and doesn't need to write any equations or tables. On top of that, she writes in Spanish, requiring plenty of áccénts, which are a little tricky to do in LaTeX. <br /><br />She emailed me one of her documents yesterday, and I had the shock of my life. It was laid out better than anything I've done yet. I know I shouldn't be attracted to Susie because of her typesetting skills, but it's hard not to be...javagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com0tag:blogger.com,1999:blog-1148641104414439107.post-81606674466504130332009-11-16T04:16:00.000-08:002009-11-16T05:12:18.310-08:00Can Governments be Ponzi Lenders?For a paper I'm writing, I've been doing a little reading up on the Fiscal Theory of the Price Level. This theory, depending on to whom you listen, is either a piece of logical brilliance, or lunacy. <br /><br />The basic premise is that the real value of government debt must equal the discounted expected future primary surpluses of the government. Should the government acquire debt beyond its capacity to repay, bond holders will realise this, selling the bonds down, which drives up interest rates. As a sovereign cannot default on debt denominated in its own currency, the central bank is forced into buying these bonds, expanding the money supply, and boosting prices until the point where the nominal debt becomes repayable. <br /><br />The big argument about this theory is whether the `fiscal limit', described above, is an equilibrium condition determining prices, or a limit on government behaviour. Roughly, Christopher Sims, Michael Woodford, and John Cochrane have argued the `equilibrium condition' line, while Willem Buiter has argued the fiscal limit is a `constraint'. <br /><br />Both of these arguments are, though, difficult to logically justify. <br /><br />The first---that the price level is implicitly determined by the stock of government debt relative to expected future budget balances---is easy to defeat. The problem with this thesis is that it requires all government savings to be made in the expectation of some future primary deficit. Should one government <span style="font-style:italic;">ever</span> run a fiscal surplus despite having noexpectations of future primary deficits, then (without some further strong assumptions) the model fails. <br /><br />The second---that the fiscal limit defines the maximum borrowing a government could make before provoking inflation---is more complicated to argue. Assuming the Buiter argument is true implies governments could lend money continually without ever expecting to run a primary deficit. This is irrational, and violates what is known as the "no-Ponzi-game" condition, which forbids actors from either holding positive or negative balances at the day of reckoning (which occurs into the infinite future). Therefore, the Buiter hypothesis necessitates assuming one of the main actors in models <span style="font-style:italic;">only</span> behaves irrationally: a very strong assumption. Or is it?<br /><br />This raises a question: <br /><blockquote>For any actor that has an infinite life and expects never to deplete their savings, are their savings irrational? Remember---infinity periods is a very long time. Can a government be a Ponzi-lender?</blockquote>javagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com0tag:blogger.com,1999:blog-1148641104414439107.post-72929725064787409262009-11-09T15:49:00.001-08:002009-11-09T16:18:04.126-08:00Reflections on finishing a thesisI submitted my honours thesis yesterday, with a bit of relief. Now I have submitted it, I know there are a few things I should have done differently.<br /><br />1) Go vanilla: there's nothing wrong with the basic formula of a thesis (lit review, model, regressions, conclusion). I began the year wanting to incorporate natural resource price shocks into a multisector DSGE model (of my own design), and finished the year building natural resources into a two sector growth model (of Uzawa's design). <br /><br />2) Don't attempt a theoretical thesis. The fact is it takes a decade to get to the bleeding edge of economic theory, and once there, one's capacity to explain the world is diminished by the having depleted all social skills required to explain anything, due to the act of getting to the bleeding edge! There is nothing wrong with empiric studies.<br /><br />3) Don't teach three subjects with 12 hours of teaching per week. I love my students, but I think they suffered from my less-than-perfect organisation over the semester. <br /><br />and 4) Make your supervisor push you. My supervisor (who is also my boss) was excellent, and a brilliant help, though didn't want to stress me out. I think honours should be about stress. So when I get to the point of supervising people, I think I'll push a bit harder than I was pushed.javagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com0tag:blogger.com,1999:blog-1148641104414439107.post-23389031407369164132009-11-06T14:36:00.000-08:002009-11-06T14:49:53.880-08:00Congratulations, sister!This morning, my younger sister was in<a href="http://www.abc.net.au/rn/saturdayextra/stories/2009/2735314.htm">terviewed</a> on Radio National, about her <a href="http://www.eurekastreet.com.au/article.aspx?aeid=17310">latest article in Eureka Street</a>. <br /><br />The central point of her article is that women, including those `liberated' in the sense they are allowed to show more skin, are really subjected to much the same kind of pressures women face in less `liberal' societies. The Brownlow medal ceremony is a great example: the wives and girlfriends are decoration, and there exists no equivalent institution where the "husbands and boyfriends" of prominent women are objectified in the same sense. <br /><br />Given the fairly real content of Ellie's article, though, it was a bit disappointing that the discussion on RN focussed on the difference between dressing skankily and suavely, rather than the more meaty problems. <br /><br />Congratulations, Ellie!javagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com0tag:blogger.com,1999:blog-1148641104414439107.post-87555849167605331062009-11-05T23:13:00.000-08:002009-11-05T23:24:59.560-08:00Some clichés are less equal that othersWhenever I have difficulty throwing a sentence together, I find it helpful to go over Orwell's famous essay `Politics and the English language' (1946). Orwell hated phrases that have <br /><br /><blockquote>lost all evocative power and are merely used because they save people the trouble of inventing phrases for themselves. Examples are: <span style="font-style:italic;">Ring the changes on, take up the cudgel for, toe the line, ride roughshod over, stand shoulder to shoulder with, play into the hands of, no axe to grind, grist to the mill, fishing in troubled waters, on the order of the day, Achilles' heel, swan song, hotbed</span>.</blockquote><br /><br />Perhaps a few more people who quote Orwell should have read him: <br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjKRBFCUPv1oURSnypoLoHA6aMWB8BPPJ_CfNM4eOnK2TjSw_52aUgSoCo1VTxAjEoAwu1VgS1mpTX-Ycatmn6v1v2TrmYcS6G-R-RQgw2YV6ieHGPCGiFkuvKH93lBrCeMIC3WkjWw-dk/s1600-h/aremoreequal.jpeg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 146px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjKRBFCUPv1oURSnypoLoHA6aMWB8BPPJ_CfNM4eOnK2TjSw_52aUgSoCo1VTxAjEoAwu1VgS1mpTX-Ycatmn6v1v2TrmYcS6G-R-RQgw2YV6ieHGPCGiFkuvKH93lBrCeMIC3WkjWw-dk/s400/aremoreequal.jpeg" border="0" alt=""id="BLOGGER_PHOTO_ID_5400887344671624354" /></a>javagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com0tag:blogger.com,1999:blog-1148641104414439107.post-40836286874473057472009-10-31T18:55:00.001-07:002009-10-31T20:04:14.974-07:00Jonothan Safran Foer on Dog-EatingIn a <a href="http://online.wsj.com/article/SB10001424052748703574604574499880131341174.html">column in this weekend's WSJ</a>, JS Foer presents his case for eating dogs. <br /><br /><blockquote>[What we're already doing is]rendering—the conversion of animal protein unfit for human consumption into food for livestock and pets—[which] allows processing plants to transform useless dead dogs into productive members of the food chain. In America, millions of dogs and cats euthanized in animal shelters every year become the food for our food. So let's just eliminate this inefficient and bizarre middle step.</blockquote>javagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com0tag:blogger.com,1999:blog-1148641104414439107.post-69684003252626271702009-10-30T16:21:00.000-07:002009-10-30T20:28:59.143-07:00Global imbalances & US monetary policyI'm currently doing a research paper for <a href="http://www.janlibich.com/">Jan Libich</a>, one of my supervisors, on Fiscal-Monetary interaction. <br /><br />A key area of research in the field is determining the game theoretic relationships between fiscal players---who are overly viewed as pouring fiscal `gravy' onto the electorate at any given chance---and monetary players, who are inflation hawks, and so take away Greenspan's punch as the party gets going. Jan knows about as much as there is to know with this game theoretic relationship (though he is more modest of himself than I am of him), and so his papers are worth reading. The essential insight from this strand of research is that independent central banks have the capacity to punish overly expansionary monetary policy if a few conditions are satisfied. <br /><br />In layman's terms, the conditions boil down to the assumption monetary policy tightening hurts the same people who enjoy licking up the government's gravy. So in countries with no political business cycle (dictatorships), and in monetary unions, like the EU, the model requires modification, which is partly what my paper-in-progress is about. <br /><br />What hasn't been researched in this literature so far (to my knowledge) is how central banks, which are mandated by law to target price stability, output gaps, or both, may have had their hands tied in punishing governments for reckless deficit spending. This view would say that Greenspan kept interest rates low well into the 00s because the Fed's implicit price target was not breached, due to the huge disinflationary pressure of Chinese imported goods. <br /><br />If this holds, then blame for the explosion in house prices in the US can not only be pinned to China and the GCC for running huge surpluses---the so-called `global imbalances thesis'---but establish a degree of causality between Chinese currency policy (which kept export prices low in UD dollar terms) and US monetary/fiscal policy during the period.javagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com0tag:blogger.com,1999:blog-1148641104414439107.post-15000223689717621142009-10-30T05:14:00.000-07:002009-10-30T05:24:49.641-07:00Kevin Rudd goes moonlighting up north<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhu0qGuHPAI7-VEF8B6XzFRDuXizrM0PmQ8yIA_V-g4KoVlh4f8AXU7LJMSqVV4uwI7SUlagkLiKUcYtbRlZzzkdXiN3GwvHncNWHo53BXAWx3lzTv42eywYBUnePEWqL5OaY3QxBlJBEA/s1600-h/kevvy.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 300px; height: 400px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhu0qGuHPAI7-VEF8B6XzFRDuXizrM0PmQ8yIA_V-g4KoVlh4f8AXU7LJMSqVV4uwI7SUlagkLiKUcYtbRlZzzkdXiN3GwvHncNWHo53BXAWx3lzTv42eywYBUnePEWqL5OaY3QxBlJBEA/s400/kevvy.jpg" border="0" alt=""id="BLOGGER_PHOTO_ID_5398366877270605250" /></a><br />I read somewhere that Kevin Rudd had spent somewhere around a quarter of his time in office overseas. <br /><br />I took this photo somewhere between Malang and Mojo in East Java, during Indonesian parliamentary (DPR) elections during January. I thought I'd lost it, which is a shame, as it is definite proof that Kevin Rudd is leading a double life. Thankfully, I haven't lost it, so I can bring down the government for which I'm about to start working :p<br /><br />Kevvy could probably have done better than run in PDI Perjuangan, though.javagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com0tag:blogger.com,1999:blog-1148641104414439107.post-86463333683469737172009-10-29T14:48:00.000-07:002009-10-29T14:54:06.779-07:00Why people leave MexicoMexico is good at exporting people. It´s third largest foreign currency earner, after oil and manufacturing, is remittances. <br /><br />This little article about the political situation in Mexico gives a few good reasons why. <br /><br /><a href="http://www.economist.com/world/americas/displaystory.cfm?story_id=14416623">http://www.economist.com/world/americas/displaystory.cfm?story_id=14416623</a>javagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com0tag:blogger.com,1999:blog-1148641104414439107.post-63376949480847557542009-10-29T14:39:00.000-07:002009-10-29T14:47:25.287-07:00Sarko's showerSusana and I are are marrying in late January in Mexico. We´re both fairly young to be married (23), though this isn´t an issue to us; on the contrary, we are completely happy spending a lot of time with each other. I joke that one of the main reasons we get along so well is that we can wake up and talk about Hezbu´allah, or Sarkozy. <br /><br />Gideon Rachman, from the FT, in his blog yesterday <a href="http://blogs.ft.com/rachmanblog/2009/10/an-insight-into-the-sarko-presidency/">posted</a> a nice little piece about the great French President:<br /><blockquote>For those of you who have not yet made it to p.24 of the second section (UK edition) of today’s FT, may I bring your attention to what seems to the single most amusing/interesting fact in today’s paper.<br /><br />Paul Betts in his European View notes that, during the French EU presidency, France hosted a three day “Union of the Mediterranean summit” that cost 16.6m euros. He goes on - “On the occasion of that summit, a shower was specially installed in the Grand Palais in Paris at a cost of €245,000 for the personal use of the president. Mr Sarkozy never used it.”</blockquote>javagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com0tag:blogger.com,1999:blog-1148641104414439107.post-74176706846322707042009-10-28T15:26:00.000-07:002009-10-28T16:58:56.714-07:00On tutoring Macro 3Today, sadly, is my last day (possibly ever) of tutoring Macro 3.<br /><br />Over the last two years, I have taught (and tried to remember the names of) about 500 students at pre-university foundation level, first year, second year, and third year levels. Three things constantly surprise me. <br /><br />1) While naturally bright students can do relatively well during first year without much work, during second and third years, sweat is the best determinant of success. I have probably two douzen very gifted third year students, and most this semester have been outperformed by sheer persistence of a few students,.<br /><br />2) Filtering the whey from the curds works. La Trobe is in a bit of a tough spot when it comes to finding great first year students. The four main demographics of the student population are <br /><br />(a) the chaff--students who've made it through school and whose parents have told them to do a degree, <br /><br />(b) smart students from sloppy state schools--they tend to do well, though were probably either too lazy or too il-taught at school to get into Melbourne, <br /><br />(c) rogues from private schools--these students did poorly in good schools, and are from fairly prosperous backgrounds; they tend to improve over their degrees, and<br /><br />(d) mature age students from the Northern Suburbs--these students generally have a hard time getting started, but once adjusted, tend to go very well. <br /><br />The problem with La Trobe's new expansion strategy is that it targets school leavers in order to improve numbers. This strategy will uncover a few good students. One of my best students from last semester would have probably fit in category (a) before he came to uni. He is from a Lebanese Australian background, born in the Northern Suburbs, and speaks with a broad Northern Suburbs accent. At first glance, the crass judgement would be that he probably studies accounting and drives a fully sick VL. Now at uni, he seems to have discovered that a whole deal of hierarchy depends on the amount of knowledge one has---a beautiful thing! Yesterday, he educated me about the finer points of the Malaysian monarchs. <br /><br />Unfortunately, the majority of school leavers we get are not as inquisitive as the Wikipedia addict above. Many drop out, which is good for the other students, though it would be great if they were good students to start with. <br /><br />A more sensible number-increasing strategy, I think, would be to target an increase in the number of the students from the most successful demographic. In economics, our mature aged students---most of whom have made too many lattés, or dealt too many hands of cards, and know the value of eduction---get great grad positions in most of the good government departments. <br /><br />The problem is targeting these potential students. Should the university send out scouts to cafés and hand pamphlets to baristas who enjoy talking politics? <br /><br />3) Despite the fact we have so many great third and fourth year economics students--certainly of the same standard to those from any other uni--so many continue to actually want to go into finance or accounting. For some reason, Economics has not successfully been made sexy the same way accounting and finance has. Could it be that economics is simply not sexy? Or have accreditations like CA, CPA, and CFA been marketed as being superior? Do we even want those who've been able to be attracted by the prospect of becoming an accountant barging in our territory?javagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com1tag:blogger.com,1999:blog-1148641104414439107.post-78788208420985918192009-10-28T15:24:00.000-07:002009-10-28T15:26:46.322-07:00Camping trip!I am organising a big camping trip for friends and students on December 2-4. If you are keen, send me an email.<br /><br />nosp4m_javage@gmail.com<br /><br />Jimjavagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com0tag:blogger.com,1999:blog-1148641104414439107.post-26824914112969057152009-10-25T19:27:00.000-07:002009-10-25T19:49:50.895-07:00Should smokers and non-savers face longer prison sentences?This post is co-authored by Timur Behlul. <br /><br />This follows from my post last night, which essentially states that virtuous behaviour is more or less the same as behaviour associated with not discounting the future: exercise, saving, temperance, and good manners. Conversely, acts of vice are associated with higher subjective discount rates. <br /><br />If this line of thought is correct, then the following story should hold:<br /><br />Two potential thieves consider robbing a store. They both have the same expectation of being caught, and the punishment for both potential thieves would be the same. If the two potential thieves differ only in their subjective discount rates, then there exists some level of punishment which will induce criminal behaviour in the potential thief with the higher discount rate, and will result in the thief who considers the future with more value not doing the crime. <br /><br />Likewise, if the two thieves are able to be punished with different sentences, there exist two different sentences at which both thieves will not engage in the crime at the margin. The thief with the lower discount rate requires a shorter potential sentence as a deterrent than the other. <br /><br />To the extent to which these two statements are true, there exists an argument that the deterrent sentences imposed on different criminals should be proportional to their subjective discount rates. <br /><br />However, for a prospective criminal to be aware of the potential consequences of their actions, there must be complete knowledge over how their punishment is elastic to the court's perception over their subjective discount rate. This would require a publicly known set of proxies for discounting to be known. <br /><br />So if people who smoked, saved little (relative to peers in their income bracket), had plenty of speeding fines and the like, were made aware their potential crime would result in a higher length of imprisonment than if they didn't smoke/did save/didn't speed, there would simultaneously exist incentives for people to review their potentially in-virtuous behaviour at both ends---crime and smoking.javagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com0tag:blogger.com,1999:blog-1148641104414439107.post-10513468815501921232009-10-25T04:36:00.000-07:002009-10-25T06:02:46.094-07:00Can a Society aim to be virtuous?I should qualify this post with a disclaimer: I really enjoy vanilla economics. I like talking about tax systems, bank regulation, development, and town planning. <br /><br />Sometimes, however, I get a little bit excited, and start to think about other things---the kind of dancing that in Strictly Ballroom loses Pan-Pacific Grand Prix tournaments. <br /><br /><span style="font-style:italic;">The Virtuous Society: A worthy aim?</span><br /><br />Economists generally have fairly concrete aims: inflation, unemployment, efficiency, growth, disease, education, crime, etc. The one very big one doesn't seem to be mentioned much---I think partly due to a lack of the Common Balls, and partly due to the fact that those who have mentioned it in the past have been genocidal maniacs---is `virtue'. Virtue is almost certainly the aim of all societies; this aim is reflected in law, religion, and many of those little social customs which help determine the social standing of people. I think also that virtue is inextricably bound to economic behaviour. <br /><br />Virtuous behaviour is synonymous with economic temperance. The virtuous man is one who does not discount the future when making his decisions: he exercises rather than eating chocolate, abstains rather than drinks, studies rather than shirks, and never sleeps in. The man of vice trades the future for something a bit more immediate. A sugar hit. <br /><br />I am not religious, though <span style="font-style:italic;">virtuous behaviour</span> is put well by Luke 12: 37-38 <br /><br /><blockquote>Blessed are those servants whom the master finds awake when he comes; truly, I say to you, he will gird himself and have them sit at table, and he will come and serve them. If he comes in the second watch, or in the third, and finds them so, blessed are those servants! </blockquote><br /><br /><br />Should Virtue actually be our unspoken social aim (I think it is, though I'm happy to be persuaded otherwise) then there are two distinct possibilities of its nature, each with their consequences for policy. <br /><br />The first is that virtue is learned temperance. Social institutions, in this case, have the role of determining the norms of discounting. The Singaporese, who save almost half their private incomes, are normalised in a culture which places some (economic) weight on the distant future. In Guinea-Bissau and Burundi, they worry about today more---both countries were on average disinvesting between 2000 and 2005 (World Bank 2005). The difference is between their common social perceptions of the value of the future. Surprisingly, is it not due only to poverty---Haiti saves a greater proportion of private income than does Australia. <br /><br />Should virtuous behaviour be just learned temperance, then policywise, there is an ethical dilemma: what is the acceptable cost in terms of liberty of "nudging" society into having a more distant gaze? This question recognises that any policy which is based upon having people modify not only their consumption choices, but also their choices of non-economic behaviour (like the decision whether or not to engage in road rage), requires some level of negative payoff. In this respect, Deepak Lal's thesis---that many Eastern societies govern individual behaviour by concepts of familial honour---is interesting: moderating influences are enforced by the group to which the ultimate consequences of individual indiscretion flow. <br /><br />Judging most policy against this first possibility, it is hard to see that government believes wholly that virtue can be learned. `Consenting adults', the cornerstone of the brand of liberalism I enjoy, seems to have influenced most policy, save drugs and bicycle helmets. <br /><br />The second possibility is that virtue is not learned temperance, but actually the capacity of only a few virtuous people. Under this scenario, there is little that can be done to make one obey virtuous behaviour; there are simply good eggs and bad eggs. What role is there for policy in this circumstance? Save recognising and helping good eggs (which already happens)---very little.javagehttp://www.blogger.com/profile/16427725069671113980noreply@blogger.com1