Archive for category Goofs
What is a “rigid market?” I’ve been learning economics for four decades and I’ve never heard that term used in technical conversations. So I went to the source: a story on Marketplace (American Public Media, aired in the greater Silicon Valley area October 2, 2012). Here’s the relevant part of the story:
“When, in the course of human events, it becomes necessary to go on TV and proclaim freedom from foreign oil, energy pros get upset. “It’s like listening to fingernails against a chalkboard,” says industry veteran Mikkai Herberg. “Because you know better than this.”
So what about the physical supply of oil — the idea we need to drill our own, or get it from nearby friends? Location was what mattered in the energy crises of the 70s.
Herberg, now at the National Bureau for Asian Research, remembers. He could only pump gas then, based on his license plate number.
“We could fuel up on Friday coming over,” he says, “and we could fuel up on Sunday going back — but not on Saturday. Odd-even gas days, and gas lines of 30 or 40 cars, running out of gas while they were in line, pushing their vehicles to the pump.”
Back then, oil markets were rigid. It’s like your cable TV company: you’re locked into a seller long term. And if something goes out, you’re stuck.
Today, we can always buy oil from somewhere. If you pay a high enough price, whistle and it’ll come.”
“Oil markets were rigid?” I don’t even know what that means. The real problem in 1973 was the price controls on gasoline that kept the legal ceiling price below equilibrium. Quantity demanded exceeded quantity supplied and some form of non-price rationing was required. In this case, it was one of the most common forms, namely queues. Period. No economist worthy of the name doubts this. How Marketplace can get things this wrong is, well, a wonderment.
“There’s no such thing as a free lunch.” Who invented this wonderful phrase? NPR’s “All Things Considered” just credited Barry Commoner with inventing the phrase (http://www.npr.org/2012/10/02/162176994/paul-revere-of-ecology-sounded-alarms-on-pollution accessed October 2, 2012).
Transcription is by me from the mp3 file download.
“The late environmentalist Barry Commoner came up with four laws of ecology:
- Everything is connected to everything else,
- Everything must go somewhere,
- Nature knows best, and
- There’s no such thing as a free lunch.”
I don’t much like Wikipedia, but even they got this one right (footnotes omitted, see http://en.wikipedia.org/wiki/There_ain’t_no_such_thing_as_a_free_lunch accessed October 2, 2012):
“”There ain’t no such thing as a free lunch” (alternatively, “There’s no such thing as a free lunch” or other variants) is a popular adage communicating the idea that it is impossible to get something for nothing. The acronyms “TNSTAFL,”" TANSTAAFL and TINSTAAFL are also used. Uses of the phrase dating back to the 1930s and 1940s have been found, but the phrase’s first appearance is unknown. The “free lunch” in the saying refers to the nineteenth century practice in American bars of offering a “free lunch” as a way to entice drinking customers. The phrase and the acronym are central to Robert Heinlein‘s 1966 libertarian science fiction novel The Moon is a Harsh Mistress, which popularized it. The free-market economist Milton Friedman also popularized the phrase by using it as the title of a 1975 book, and it often appears in economics textbooks; Campbell McConnell writes that the idea is “at the core of economics”.
It happens that in my youth I read quite a bit of Mr. Heinlein’s writing. I can well remember both the novel and the use of that phrase. Personally, I’ve always preferred TANSTAAFL (There ain’t no such thing as a free lunch). But, no matter how you phrase it, Mr. Commoner did not invent it. I seriously doubt that he was the first to use the phrase in environmental discussions.
I won’t comment on “nature knows best” except to say that Mr. Commoner apparently never encountered a rattlesnake, ebola, or an active volcano. He needed to get out more.
The latest Costco fail. I got an offer today to upgrade my account to “Executive” status. Costco knows very well that my current account has two members. See how long it takes you to spot the issue in this letter.
I call on Paul Krugman: return his Nobel Prize in economics. My request is based on his article in the April 29 New York Times magazine. Titled “Earth to Ben Bernanke,” the article actually supports many of Dr. Bernanke’s actions, specifically the quantitative easing program. (Dr. Krugman, for some reason, does not like this name, calling it “This is the strategy that has come to be known, unhelpfully, as quantitative easing.” Really? Unhelpfully?
So what does Dr. Krugman believe the Fed should do? I can summarize his proposal in one phrase: announce a higher target for long-term inflation. Currently the Fed’s implicit inflation target is probably around two percent. Krugman believes, with some empirical support, that raising the inflation target would cause people and businesses to increase their spending because they will expect the purchasing power of their money holdings to depreciate faster. However, there is another point that Krugman overlooks that is at least as important as increasing velocity.
Higher inflation expectations mean higher nominal interest rates. Krugman seems to be following the lead of Dr. Olivier Blanchard, now “Economic Counsellor and Director, Research Department” at the IMF. Prof. Blanchard is currently on leave from M.I.T. He once proposed that increasing the inflation target would increase interest rates, giving the central bank more room to — get this — lower interest rates. Let me quote from my blog entry in March, 2010:
“Blanchard’s argument is that by raising the inflation target, nominal interest rates would be higher. This, he proposes, would give central banks more room to reduce interest rates to stimulate the economy.
Unfortunately, Prof. Blanchard has made an error that should make him blush. It is the real interest rate, not the nominal interest rate, that affects most economic activity. The only way Prof. Blanchard’s model can work is by appeal to the long-discredited “money illusion” hypothesis.”
Spending depends on real interest rates, not nominal rates. Increasing inflation expectations will indeed increase nominal interest rates and raise spending a bit by increasing the velocity of circulation of money. But the increase in spending won’t be very large because real interest rates have not changed.
Dr. Krugman has one Nobel Prize, while Dr. Blanchard has none. Krugman’s proposal today is no more valid than Blanchard’s was two years ago. I call on Dr. Krugman to return his Nobel prize in economics for failing to see a fundamental flaw in his proposal.
AAPL tops $500 and Peter Boockvar gets it wrong. In today’s Wall Street Journal Market Beat blog there is a short article about Apple stock hitting $523.76. Mr. Boockvar says, “…Apple’s stock has gone parabolic. And, parabolic moves always end one way, back to the place where the parabolic move began. …”
Wow. Did someone pay him for that bit of incisive — and completely incorrect — analysis? Even under the incredible mismanagement of the current administration, the U.S. economy has continued to grow. Tell us, Peter, when does that “parabola” return to its point of origin? I know several people who bought AAPL at the equivalent of $1 per share, maybe less. I hope Mr. Boockvar is not suggesting that the parabola will return to that point. Highly doubtful.
I’m starting early retirement this year. And, naturally, I’ve been inundated with forms from the California Public Employees Retirement System. Today I received a letter that made me look twice. Here’s what it said:
I sure hope gender change surgery isn’t a prerequisite to my retirement!
The relentless Murdochization of the Journal continues. This weekend (August 27-28) was an especially good example.
First, consider the issue of geography. Here’s the first part of an article about Hurricane Irene:
There’s only one small problem. Springfield is indeed 90 miles from Boston, but it’s west of town, not north. If the residents are indeed evacuating, Irene must be a heck of a lot larger than forecasters are predicting.
Second, there’s a long review of a new biography of Jane Fonda (Patricia Bosworth, Jane Fonda: The Private Life of a Public Woman. Houghton Mifflin Harcourt, 596 pp., $30). The review is actually more of a commentary on Ms. Fonda’s life and questionable choices. But the Journal editors at least included a slideshow, including the following two images.
And don’t get me started about the headline that briefly read “Hurricane Hits Pummels U.S. Coast.”
From the May 8 Wall Street Journal:
“Some traders say one culprit for the quick downdraft might have been a type of trade called an “intermarket sweep order,” or ISO. ISOs, which some studies say account for nearly half of all trades, send trades to whatever exchange that has the best price. The order can remain there until it is filled—even if that means the price falls to near zero.”
Points will be awarded to anyone who can parse that paragraph to explain anything — anything — about the crash. Extra credit for those who can explain how an ISO “buy” order (which seems to be what’s being described) could contribute to a decline in price.
The New York Times contributes to the disarray:
‘“On Thursday, some sellers placed orders that were not fulfilled until prices had plunged as low as a penny a share. If sellers had placed “limit orders” instead, those transactions would not have happened, Professor Harris said.’
Let’s see – sellers placed orders that were executed at $0.01 per share. This sure sounds like a limit order to me. Even more points will be awarded to anyone who can differentiate what the Times described and a limit order. No fair using outside sources. You have to use the material as quoted. (You are allowed to refer to the entire article as cited below, however. But watch out. Devious editors have been known to alter content on the fly.)
 http://online.wsj.com/article/SB20001424052748703338004575230600732737716.html#mod=todays_us_page_one. URL may change and may require registration and/or subscription
 http://www.nytimes.com/2010/05/09/business/09trading.html?hp. URL may change and may require registration and/or subscription