Comments on economics, mystery fiction, drama, and art.

Monday, October 29, 2007

Too much good stuff

Because other people post too much good stuff, it's easier just to link to them:

Do business profs make better corporate executives:

Prices to ration scarce resources:

Entrepreneurship conference

Overpaying for acquisitions: the Skype fiasco:

Getting fired for smoking:

Enterprise Value Added and Future Value

Price discrimination in shipping

Why is Facebook worth $15 billion?

Marketing is the new finance?

German booksellers make the rules so their rivals won’t:Discounting is illegal

Wait! Large profits provoke a competitive response?

Movie studios schedule release dates…

Tuesday, October 23, 2007

Words I Never Thought I'd Read

From BusinessWeek, October 29, 2007, p. 40:

"That has helped manufacturers of larger cars such as Volkswagen..."

As a child of the '60s, the idea that Volkswagen might be selling "larger cars" is hard to cope with. The sentence ends:

"...which saw its sales in China and Hong Kong jump 30% in the first nine months." Still, even in China and Hong Kong...

Saturday, October 20, 2007

On the Gold Standard

One of the Republican candidates for the presidential nomination (Ron Paul) continues to support the gold standard--making the dollar convertible into gold at a fixed rate--one of the central aspects of what passes for his economic plan.

The best demolition of the theoretical underpinnings of the gold standard was written by John Maynard Keynes, in Chapter 4 of A Tract on Monetary Reform. Briefly, he argues that we have to choose between stabilizing the international value of our currency (the exchange rate between the dollar and, say, the euro) and stabilizing the domestic price level. He argues, quite cogently, that the gold standard will do the former, but will, in fact destabilize the domestic price level.

Not exactly a new argument. The Tract was published in 1923.

(Note: I've been rereading Keynes as my lunchtime reading. And it's a treat.)

Tuesday, October 16, 2007

Class Size and Educational Attainment

Here's a report on a study in Tennessee, on the effects of class size on educational attainment. It looks well-designed (random assignment of students and teachers to smaller and larger classes), and the results are somewhat different from much of the literature I'm familiar with--the authors find a fairly large, positive effect of smaller (13 - 17 student) classes, compared with larger (22 - 27). One of the conclusions:

"...the authors project that reductions in class size would generate a lifetime net cash return of almost $200,000 (presumably in the form of taxes collected) for each additional low-income student who graduates from high school as a result of early placement in a small class. "

I gotta get me a copy of that study.

And, in the "To Be Read" pile

I need to retire now, so I can catch up on my reading.

David Colander (ed.), The Stories Economists Tell.

Herb Gintis et al. (eds), Moral Sentiments and Material Interests.

William Baumol, Robert Litan, and Carl Schramm, Good Capitalism, Bad Capitalism.

Tom Slee, No One Makes You Shop At Wal-Mart.

Robert Frank, The Economic Naturalist.

Thomas McGraw, Prophet of Innovation.

Gregory Clark, A Farewell to Alms.

Lawrence Block, Tanner on Ice and Me Tanner, You Jane.

Qiu Xiaolong, When Red is Black.

Edward Marston, The Railway Viaduct.

Seamus Heaney, District and Circle.

Parnell Hall, Hitman: A Stanley Hastings Mystery.

The Selected Poems of Li Po.

Charles Wright, Littlefoot: A Poem.

Monday, October 15, 2007

In the "To Be Listened To" Pile

Bruce Springsteen, Magic.

John Fogerty, Revival.

Annie Lenox, Songs of Mass Destruction.

Melissa Etheridge, The Awakening.

Steve Earle, Washington Square Serenade.

Geri Allen, Timeless Portraits and Dreams.

Randy Weston, Ancient Future.

So much music, so little time.
So many books, so little time.

Hurwicz, Myerson, and Maskin--The Winners of the Nobel Memorial Prize in Economics

I'm not going to try to provide any anaylsys of their work--others have beaten me to it--so look at the piece on line at the Chronicle of Higher Education, or hike on over to the Marginal Revolution blog, where Alex and Tyler discuss the work in general, and the work of Maskin, Myerson, and Hurwicz specifically. This is a pure theory award (although there re a lot of applications), and the theory is fairly dense.

Wednesday, October 03, 2007

Want to know about the characteristics of people living in your Zip Code?

So it's all from the 2000 Census, but this is a pretty amazing website.

Tuesday, October 02, 2007

An academic "light bulb" joke

How many graduate students does it take to change a light bulb?

Only one, but it takes him eight years, and when he’s done, he can’t remember why he wanted to.

Monday, October 01, 2007

Core CPI in the blogosphere

Over on Michael Froomkin’s blog (, there’s been some discussion of the core CPI and its uses. Michael triggered this by linking to another discussion, in which it was asserted that the CPI left out food and energy prices. I felt I had to chime in, which I did, twice. As reported below.

Comment #1

The CPI does not exclude food and energy prices. Based on the Survey of Consumer Expenditures (the 2005 survey is at, the current weight assigned to food (as a broad category) is 12.8% of the CPI; the weight assigned to energy is more difficult to calculate. However, the weight for "utilities, fuels, and public services" would be 6.9%, and the weight for "gasoline and motor oil" would be 4.3%.

There is a version of the CPI, called the "core" CPI, which does exclude energy and food. Energy and food prices are more volatile--they both rise and fall more than do prices for most other categories of consumer purchases. Since 1960, the rate of inflation has averaged 4.17% per year using the total CPI, and 4.14% per year using the "core" CPI.

It's not clear to me that anyone is doing anything that's nefarious here. How one would construct the charts shown in the post is also something I don't understand, and cannot replicate.

Comment #2

A few more facts. Which this discussion could use.

1. Over the two years (August 2005 to August 2007), the average annual rate of inflation using the overall CPI has been 2.9%.

2. The Bureau of Labor Statistics does not report an annualized rate of inflation for the core CPI (excluding food and energy prices), because it does not think that's an appropriate thing to do. You can calculate it if you wish, but why would you? [If you did, the core CPI (excluding food and energy) over the past two years has averaged 2.5%.] It's designed to abstract from short-run volatility, not to tell a long-run story.
3. The core CPI shows a faster rate of inflation in 11 of the last 24 months. The two indexes show the same rate of inflation 3 times. The total CPI shows a faster rate of inflation 10 times.

4. The core CPI is much less volatile--which is what it's designed to be. The range of annualized monthly rates of inflation using the core CPI varies from a low of -1.8% to a high of +7.9% (the core CPI fell in 3 months, was unchanged in 1 and rose in 20). The rate of inflation measured by the overall CPI has a range from a low of -9.2% to a high of +15.7% (the overall CPI fell in 7 months and rose in 17). But, again, the average annual rate of inflation over the period isn't all that different regardless of which you use. And over an even longer term, they are essentially identical.

5. The BLS also calculates other CPIs, excluding other things. There's one that's all items excluding medical care. And one that's all items excluding shelter. Nobody ever talks about those.

I think if you look at the facts, the conclusion you reach is that the core CPI is not a nefarious means of trying to persuade people that the rate of inflation is lower than it actually is. It's a policy tool that allows a focus on longer-term trends in inflation--and, as a result, the Federal Reserve tends not to obsess about month to-month changes in the rate of inflation. I don't think anyone can argue (successfully) that the Fed has ignored inflation of late.