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

Thursday, December 31, 2009

The Persistence of Hope Over Experience

One of the things that fascinates me is the persistence of effort people show in the face of extreme disappointment. This was brought home to me while I was preparing some data sets for my course in sports economics for the spring semester.

Over the past three decades, a number of professional golfers have entered 15 or more tournaments in a year, with little to show for it in the way of results. I'm omitting player names, because that's not the point, but here are the results--year, number of tournaments, and winnings. Some of these, in context, are semi-understandable--players trying to come back from injuries, very good players who just lost it. But consider the guy in 1980, who entered 17 tournaments and won $138, total. An average of $9.50 per tournament. Or the 20-and-over tournaments champ, in 1988--21 tournaments, $661 in earnings. $31.50 per tournament.

The desire these men had, and probably still have, to play tournament golf, to compete at the highest level, must be, and have been, amazing. And far beyond anything I would willingly suffer.

Year......Tournaments.......Winnings
2009...............17..................$13,671
2008...............16..................$34,303
2007...............21..................$53,673
2006...............22..................$11,160
2005...............20..................$7,630
2004...............25..................$21,250
2003...............15..................$10,091
2002...............18..................$16,854
2001...............16..................$21,904
2000...............15..................$16,925
1999...............22..................$9,550
1998...............26..................$3,173
1998...............25..................$2,850
1996...............23..................$2,544
1995...............22..................$2,748
1994...............21..................$4,250
1993...............19..................$2,343
1992...............17..................$6,075
1991...............16..................$3,195
1990...............17..................$2,367
1989...............19..................$3,052
1988...............21..................$661
1987...............16..................$680
1986...............20.................$4,399
1985...............17..................$1,463
1984...............16..................$400
1983...............16..................$402
1982...............15..................$1,161
1981...............16..................$320
1980...............17..................$138

Tuesday, December 15, 2009

And the current Treasury auction of 28-day notes...

...goes for a yield of 0.0%. That's right, the US Treasury has just borrowed $27.7 BILLION dollars for 28 days at a ZERO rate of interest. (Issue date, 12/17, due 1/14.) More. They received bids totalling $121 Billion at a zero interest rate. More. Last week, the Treasury borrowed $28..7 Billion, with $154 Billion bid, at a zero interest rate.

And there are both transactions costs and foregone interest involved here. (Not much foregone interest; my credit union is paying 0.3% per year, so, on the most recent $27 Billion, the 28-day interest payable at 0.3% per year would be a little over $6 million over the 28 days of the term of the T-notes.) So the real return on these is negative.

Now, I don't do finance (I am thankful about that), but this could stand some explaining. One of my colleagues--who does do finance--suggests the purchases are being made by governments. So they must view the next-best-alternative (holding the $27 Billion in non-interest-bearing bank deposits?) as carrying enough risk to offset something around $10 million of opportunity costs.

What's scary, I think, is the excess demand for these notes even at a zero rate of interest. If the "flight to safety" of US Treasury notes is still proceeding at that rate, then maybe we should be a little more concerned than we are about the fragility of the world financial system...

Monday, December 14, 2009

A Samuelson Bibliography

"Some Aspects of the Pure Theory of Capital", 1937, Quarterly Journal of Economics.

"A Note on Measurement of Utility", 1937, Review of Economics and Statistics.

"A Note on the Pure Theory of Consumer's Behaviour", 1938, Economica.

"Numerical Representation of Ordered Classifications and the Concept of Utility", 1938, Review of Economics and Statistics.

"Interaction Between the Multiplier Analysis and the Principle of Acceleration", 1939, Review of Economics and Statistics.

"The Stability of Equilibrium: Comparative statics and dynamics", 1941, Econometrica.

"Constancy of the Marginal Utility of Income", 1942, in Lange et al, editors, Studies in Mathematical Economics.

"The Relation Between Hicksian Stability and True Dynamic Stability", 1944, Econometrica.


Foundations of Economic Analysis, 1947.

"
Some Implications of Linearity", 1947, Econometrica

"Consumption Theory in Terms of Revealed Preference", 1948, Economica

Economics: An introductory analysis, 1948.

"International Trade and the Equalisation of Factor Prices", 1948, Economic Journal.

"International Factor-Price Equalisation Once Again", 1949, Economic Journal.

"The Problem of Integrability in Utility Theory", 1950, Economica.

"Probability and the Attempts to Measure Utility", 1950, Economic Review.

"Evaluation of Real National Income", 1950, Oxford Eeonomic Papers.

"Abstract of a Theorem Concerning Substitutability in Open Leontief Models", 1951, in Koopmans, editor, Activity Analysis of Production and Allocation.

"
Economic Theory and Mathematics: An appraisal", 1952, American Economic Review.

"Spatial Price Equilibrium and Linear Programming", 1952, American Economic Review.

"Prices of Factors and Goods in General Equilibrium", 1953, Review of Economics and Statistics.


"Consumption Theorems in Terms of Overcompensation Rather than Indifference Comparisons", 1953, Economica.

"Balanced Growth under Constant Returns to Scale", with R.M.
Solow, 1953, Econometrica.

"Utility, Preference and Probability", 1953, Econometrie.

"The Pure Theory of Public Expenditure", 1954, Review of Economics and Statistics.

"Diagrammatic Exposition of a Theory of Public Expenditure", 1954, Review of Economics and Statistics.

"Social Indifference Curves", 1956, Quarterly Journal of Economics.

"A Complete Capital Model Involving Heterogeneous Capital Goods", with R.M.
Solow, 1956, Quarterly Journal of Economics.

"Wages and Interest: A modern dissection of Marxian economic models", 1957, American Economic Review.

"An Exact Consumption-Loan Model of Interest with or without the Contrivance of Money", 1958, Journal of Political Economy.

Linear Programming and Economic Analysis with R.Dorfman and R.M.
Solow, 1958.

"Aspects of Public Expenditure Theory", 1958, Review of Economics and Statistics.

"Reply to Lerner", 1959, Journal of Political Economy.

"Analytical Aspects of Anti-Inflation Policy", with R.M.
Solow, 1960.

"Efficient Programs of Capital Accumulation in Terms of the Calculus of Variations", 1960, in Arrow, Karlin and Suppes, editors, Mathematical Models in Social Science.

"Parable and Realism in Capital Theory: The surrogate production function", 1962, Review of Economics and Statistics
.
"Proof that Properly Anticipated Prices Fluctuate Randomly", 1965, Industrial Management Review.

"Rational Theory of Warrant Pricing", 1965, Industrial Management Review.

"A Theory of Induced Innovation along Kennedy-Weizsacker Lines", 1965, Review of Economics and Statistics.

"Using Full Duality to Show that Simultaneously Additive Direct and Indirect Utilities Implies Unitary Price Elasticity of Demand", 1965, Econometrica.

"A Catenary Turnpike Theorem Involving Consumption and the Golden Rule", 1965, American Economic Review.

"Economic Forecasting and Science", 1965, Michigan Quarterly Rev.

"The Non-Switching Theorem is False, with D.Levhari, 1966, Quarterly Journal of Economics.


"A Summing Up", 1966, QJE.

"The
Pasinetti Paradox in Neoclassical and More General Models", with F. Modigliani, 1966, Review of Economics and Statistics.

"General Proof that Diversification Pays", 1967, J of Finance and Quantitative Analysis.

"What Classical and Neoclassical Monetary Theory Really Was", 1968, Canadian Journal of Economics.

"Lifetime Portfolio Selection by Dynamic Stochastic Programming", 1969, Review of Economics and Statistics.

"The Fundamental Approximation Theorem of Portfolio Analysis in Terms of Means, Variances and Higher Moments", 1970, Review of Economics and Statistics.

"Understanding the Marxian Notion of Exploitation: A summary of the so-called transformation problem between Marxian values and competitive prices", 1971, Journal of Economic Literature.

"Unification Theorem for the Two Basic Dualities of Homothetic Demand Theory", 1972, Proceedings of the National Academy of Sciences.

"
Maximum Principles in Analytical Economics", 1972, American Economic Review.

"Marx as a Mathematical economist", 1974, in Horwich and Samuelson, editors, Trade, Stability and Macroeconomics.

"Complementarity: An essay on the 40th Anniversary of the Hicks-Allen Revolution in Demand Theory", 1974, Journal of Economic Literature.

"The Canonical Classical Model of Political Economy", 1978, Journal of Economic Literature.

Paul Samuelson, 1915 - 2009

Paul Samuelson died over the weekend, at age 94. He was born in Gary, Indiana (one of two Noble prize winners in Economics born in Gary, a remarkable enough fact), and he changed the world, in a very real sense.

Samuelson transformed economics, both through his scholarship (starting with Foundations of Economic Analysis, and going on from there) and through his textbook, Economics (recently co-authored by William Nordhaus). Unlike a lot of economists, he did not write books (either scholarly or popular), but published extensively in a large number of fields. What do I mean by a large number of fields?

He developed the theory of revealed preference and used it to derive both product demand curves and consumer surplus.

His doctoral dissertation (Foundations of Economic Analysis) demonstrated how advanced mathematical tools could be applied to problems in economic theory.

He developed and formalized the accelerator principle in macro theory.

He did work in trade theory, notable drawing out implications of the Heckscher-Olin trade hypothesis and developing the Stolper-Samuelson theorem.

He formalized the theory of public goods (building on the work of Richard Musgrave).

He extended the overlapping generations model.

With Robert Solow and Robert Dorfman, he developed the application of linear programming analysis to economics.

He pioneered the analysis of stock market prices; his work laid the groundwork for the studies that led to an Economics Nobel for Robert Merton and for the development of the Black-Scholes formula for valuing complex financial instruments.

He was responsible for the neoclassical synthesis in macroeconomics.

And that's just a taste of what he accomplished.

His textbook, Economics, which first appeared in 1947 and is now in its 19th edition, transformed the teaching of economics. Virtually every economics textbook currently available has borrowed the structure of Samuelson's book--and much of its analytical content. Whether they have used his book or not, every economics instructor and every economics student has bee influenced by it.

Keynes once wrote: "The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas…. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil…"

Samuelson laid the basis for much that economists have created in the past 70 years. It has been mostly for good. His presence will be missed, but his example should continue to inspire and to stimulate economists well into the future.

Wednesday, December 09, 2009

One of the advantages of being curious is that you're always learning something new and interesting

I just started reading Robert Allen's The British Industrial Revolution in Global Perspective (Cambridge University Press: 2009), and in Chapter 1, I ran across this:

"Northwestern Europe also developed a distinctive pattern of marriage that contributed to high living standards and a broader sphere of personal independence than prevailed in many societies....early-twentieth-century censuses showed two patterns of marriage in the world. East and south of a line from St. Petersburg, virtually all women married, and many of them married in their teens. West and north of that line, as many as one-fifth of women never married, and most who did marry waited until their twenties. These tendencies were most pronounced in northwestern Europe. The first marriage pattern led to high fertility and low living standards. The second...implies a lower level of fertility and one that responded to economic conditions through shifts in the proportion of women marrying and the average age of women at first marriage. [This second] pattern implied a persistently higher standard of living for the mass of the population, and that high standard facilitated savings and economic growth...DeMoor and van Zanden...have traced [this marriage pattern] back England and the Low Countries in the late middle ages. While developments in religious doctrine that emphasized the role of personal (rather than family) choice of marriage partner played a role, the decisive factor was the high wage economy following the Black Death. High wages and the strong demand for labor meant that young people--and young women in particular--could support themselves apart from their parents and control their lives and marriages. Women put off marriage until it suited then, and they found the right partner..."

This is fascinating (to me) and suggests a range of questions about subsequent developments in the economies of the Americas (north and south) and of western and eastern Europe.

Monday, December 07, 2009

A Pretty Good Employment Situation Report for November

The Employment Situation report for November has a number of positive developments.

First, of course, the top-line number for most people--the unemployment rate--fell from 10.2% in October to 10.0% in November.

Second, two major sectors (Professional and Business Services; Education and Health Services) both added jobs--a total gain in these sectors of 126,000 jobs, only 0.3%, to be sure, but a gain.

Third, the overall employment loss was only 11,000 jobs in the establishment survey--and the household survey actually showed a gain of 227,000 jobs. (The employment loss in the establishment survey was the smallest in the past 22 months, by a lot.)

Fourth, the employment loss in the establishment survey has gotten smaller each month since June. The job losses look like this:

June 2009:................-463,000
July 2009:.................-304,000
August 2009:............-154,000
September 2009:.....-139,000

October 2009:..........-111,000
November 2009:........-11,000

Paul Krugman sees a potential downside in this better-than-the-recent-past news, writing:

Today’s unemployment report was good news. But in a real sense good news is bad news, because this month’s not-too-bad number deflates the sense of urgency....The fact remains that realistic projections show unemployment staying disastrously high for many years....[The Federal Reserve's forecast shows] [u]nemployment above 8 percent in the fourth quarter of 2011; above 7 percent in the fourth quarter of 2012....And what are we going to do about it? The de facto consensus is, not much — that we can’t and/or shouldn’t take any significant further action...It’s a tragedy, wrapped in a weird complacency.

I understand his concern, but I'm a lot happier with almost stable employment than with continued losses in six figures.

Thursday, December 03, 2009

This week's sign that the United States is altogether too wealthy a nation

"...a 42-disc set of Dr. Quinn, Medicine Woman..."

Read more here. And with gratitude to Felix Salmon for mentioning this.