Fisher Wants to Break Up Big Banks

The Dallas Fed President spoke today on breaking up the too-big-to-fail banks.  He believes the industry has become way too concentrated, with half of the industry’s assets sitting on the reserves at the largest five institutions.  He wants to break up the institutions in to more manageable institutions, emphasizing that the bank’s are too large and complex to truly know their customer and follow reliable and responsible risk management practices.

My favorite quote:

Yet, in my view, there is only one fail-safe way to deal with too big to fail. I believe that too-big-to-fail banks are too-dangerous-to-permit.


Economics on the Daily Show

On discrimination against the ugly American.

Aside: Should we go with blogspot? It let’s you post videos. WordPress is crankier. It let’s you embed youtube vids, for example, but in general it does not allow for embeds except on its non-free service.

Hey Mike Shanahan: Icing the kicker is about as effective as the rest of the Redskins’ playcalls

Makes sense, doesn’t it? The coach can “ice” the kicker — mess with his mind, throw off his routine, make him stand around like an awkward guy at a cocktail party for all the world to see.

But does it work?

The short answer: No. In their book Scorecasting, Tobias J. Moskowitz and L. Jon Wertheim marshal the most compelling evidence to date on the subject, analyzing “pressure” kicks from 2001 through 2009 while controlling for distance of the field-goal attempt. They found that icing the kicker certainly doesn’t produce the desired effect, and in some cases might even backfire.

College Price Bubble Possibly? Or Are We Just Paying More to Keep Shaka?

The next official estimate of outstanding student loan debt in America is expected to be close to $1 trillion and larger than credit card debt.  This coupled with the still heightened unemployment rates presents a very difficult problem for the graduate students who struggle to find jobs.  The Economist article below specifically emphasizes the potential need to change bankruptcy laws to help out struggling college graduates who cannot make these student loan payments:

Many countries, America included, have designed student debt primarily as a mortgage-like obligation: it is repaid to a fixed schedule. Other places, like Britain and Australia, make student-loan repayments contingent on reaching an income threshold so that the prospect of taking on debt is more palatable to people from poorer backgrounds. That approach makes sense, especially when jobs are scarce. Barack Obama this week proposed to limit loan payments for some struggling American graduates to 10% of discretionary income and forgive outstanding debt after 20 years. Income-based repayment ought to become the norm.

This New Yorker article goes further to suggest the possibility of a price bubble existing within college education.  The following highlights some supporting points to the existence of this bubble:

We’ve just endured two huge bubbles, which sent the value of stocks and then homes to ridiculous levels, so the theory isn’t implausible. Of course, a college-education bubble wouldn’t look exactly like a typical asset bubble, because you can’t flip a college degree the way you can flip a stock, or even a home. But what bubble believers are really saying is that young people today are radically overestimating the economic value of going to college, and that many of them would be better off doing something else with their time and money. After all, wages for college graduates actually fell over the past decade, and the unemployment rate for recent grads is close to ten per cent. That’s hardly a ringing endorsement of the economic value of education.

The bubble analogy does work in one respect: education costs, and student debt, are rising at what seem like unsustainable rates. But this isn’t the result of collective delusion. Instead, it stems from the peculiar economics of education, which have a lot in common with the economics of health care, another industry with a huge cost problem. (Indeed, in recent decades the cost of both college education and health care has risen sharply in most developed countries, not just the U.S.) Both industries suffer from an ailment called Baumol’s cost disease, which was diagnosed by the economist William Baumol, back in the sixties. Baumol recognized that some sectors of the economy, like manufacturing, have rising productivity—they regularly produce more with less, which leads to higher wages and rising living standards. But other sectors, like education, have a harder time increasing productivity. Ford, after all, can make more cars with fewer workers and in less time than it did in 1980. But the average student-teacher ratio in college is sixteen to one, just about what it was thirty years ago. In other words, teachers today aren’t any more productive than they were in 1980. The problem is that colleges can’t pay 1980 salaries, and the only way they can pay 2011 salaries is by raising prices. And the Baumol problem is exacerbated by the arms-race problem: colleges compete to lure students by investing in expensive things, like high-profile faculty members, fancy facilities, and a low student-to-teacher ratio.

The college-bubble argument makes the solution to rising costs seem simple: if people just wake up, the bubble will pop, and reasonable prices will return. It’s much tougher to admit that there is no easy way out. Maybe we need to be willing to spend more and more of our incomes and taxpayer dollars on school, or maybe we need to be willing to pay educators and administrators significantly less, or maybe we need to find ways to make colleges more productive places, which would mean radically changing our idea of what going to college is all about. Until America figures out its priorities, college kids are going to have to keep running just to stand still.

The article does mention some flaws in this article in the fact that people without college degrees are still worse off than those with degrees in terms of the unemployment crisis.  Also, it does acknowledge that the difference between the earnings of a college graduate compared with someone who did not obtain a degree is higher than it has ever been.  Nevertheless an interesting article worth a read if you are interested.

Debt Crisis: Medicare, Medicaid & Social Security v. Raising Taxes

The two links below are an NYTimes and an Economist article on the debt crisis and the continuing battle between Democrats and Republicans.

Hence the argument for “going big” now—concocting a deficit-reduction package of $3 trillion or ideally $4 trillion, big enough to convince investors that America’s long-term problem is being tackled (and thus also leaving more room for the short-term stimulus the economy still needs).

To get to such a big figure two things must happen, one unwelcome to the Democrats, one hated by Republicans. First the Democrats would have to put entitlements, the legally mandated programmes of Social Security (pensions), Medicare (health care for the elderly) and Medicaid (health care for the poor), on the table. Pension reform might very well be possible; there is widespread agreement that the pensionable age needs to rise and that benefits will have to be means-tested. But the far bigger problem is health entitlements, and the Democrats, having only just conducted an enormous health-care reform in the teeth of Republican opposition, are deeply reluctant to do anything that might reopen that deal.

The other problem is taxes. No rational person believes that serious deficit reduction can be accomplished without any rise in tax revenues. The Republicans objection to tax rises is well known, but may not be absolute. The idea of raising tax rates is clearly going to remain anathema. But the tax code is such a morass of loopholes, breaks for the politically favoured and economic engineering on the part of bureaucrats, that comprehensive tax reform could allow for lower rates and yet increase tax receipts at the same time.

This last link answers a few general questions about the debt crisis.  I personally did not know a bill proposal for debt reduction would not be able to be amended or face a filibuster.

Advice for 2012 Fed Challenge Team

First off, this class will consume the majority of your time during the semester.  If you are somebody who does not have very much time to meet with team members on campus outside of class time or is unable to dedicate at least a couple hours a day to reading, researching, and preparing the powerpoint and script for the presentation then this class is definitely not for you.  The amount of time you will need to dedicate to this course will only increase as you get closer to the challenge date.

On that note, my first bit of advice would be to get started as early as possible.  Inevitably, for about the first month of this course you will most likely be spending the majority of your time just reading articles and papers and learning about monetary policy.  As you read these however, start to form a story or an overall idea about the current economic conditions and what you believe to be the most important factors or conditions developing at the time.  Once you have picked these assign each area as a responsibility a group member and begin specializing on your individual areas.  Save good articles (and especially good graphs) so they will be readily accessible (use dropbox).  This will allow you to start working on developing a script and powerpoint as early as possible.

Watch videos of other Fed Challenge teams on youtube as early as possible.  This will allow your group the ability to develop an overall outline on how you want to do your presentation (whether you want your presentation to be in the format of a debate, an FOMC meeting, etc).  Once you decide on the format start working on the script immediately.  Your goal should be to have a finalized script anywhere between a week or two before the competition.  This way you can have a couple of practice presentations in front of VCU faculty judges and you can also prepare for the second part of the competition by practicing different economic scenarios during class time.

Overall, the best advice I can give is to get started as early as possible and not waste any time.  Set up specific deadlines if necessary to make sure that you don’t find yourselves a few weeks from the competition with a presentation that is nowhere near ready.  The last couple weeks should be used to really perfect the presentation through practice, updating the data with the most recent numbers before the competition, and practicing the second round so you will be ready for any scenario the judges throw at you.  This is a competition and will therefore unlike any other course you have taken.  You will be expected to learn a lot more than you have in any of your previous classes and a lot of time will be required to succeed when the date of the Fed Challenge arrives.



Halving Global Poverty

Here is a paper on poverty by Besley and Burgess.  You should be able to access it through the VCU Library site.

I have the PDF but I don’t know how to attach it on this site.