Friday, December 1, 2006

Macroeconomics 101 in two paragraphs

Not really -- but this Brad DeLong essay contains two paragraphs that do an excellent job of explaining the complex interplay between what John Maynard Keynes and Milton Friedman believed:

From one perspective, Friedman was the star pupil of, successor to, and completer of Keynes’s work. Keynes, in his General Theory of Employment, Interest and Money, set out the framework that nearly all macroeconomists use today. That framework is based on spending and demand, the determinants of the components of spending, the liquidity-preference theory of short-run interest rates, and the requirement that government make strategic but powerful interventions in the economy to keep it on an even keel and avoid extremes of depression and manic excess. As Friedman said, “We are all Keynesians now.”

But Keynes’s theory was incomplete: his was a theory of employment, interest, and money. It was not a theory of prices. To Keynes’s framework, Friedman added a theory of prices and inflation, based on the idea of the natural rate of unemployment and the limits of government policy in stabilising the economy around its long-run growth trend — limits beyond which intervention would trigger uncontrollable and destructive inflation.

Hat tip: Greg Mankiw.

posted by Dan at 09:30 AM | Comments (0) | Trackbacks (0)

Thursday, November 30, 2006

Who's getting their Malthus on?

In the New York Times yesterday, Thomas F. Homer-Dixon got his Malthus on:

Mr. [Paul] Ehrlich and his colleagues may have the last (grim) laugh. The debate about limits to growth is coming back with a vengeance. The world’s supply of cheap energy is tightening, and humankind’s enormous output of greenhouse gases is disrupting the earth’s climate. Together, these two constraints could eventually hobble global economic growth and cap the size of the global economy.

The most important resource to consider in this situation is energy, because it is our economy’s “master resource” — the one ingredient essential for every economic activity. Sure, the price of a barrel of oil has dropped sharply from its peak of $78 last summer, but that’s probably just a fluctuation in a longer upward trend in the cost of oil — and of energy more generally. In any case, the day-to-day price of oil isn’t a particularly good indicator of changes in energy’s underlying cost, because it’s influenced by everything from Middle East politics to fears of hurricanes.

A better measure of the cost of oil, or any energy source, is the amount of energy required to produce it. Just as we evaluate a financial investment by comparing the size of the return with the size of the original expenditure, we can evaluate any project that generates energy by dividing the amount of energy the project produces by the amount it consumes.

Economists and physicists call this quantity the “energy return on investment” or E.R.O.I....

Cutler Cleveland, an energy scientist at Boston University who helped developed the concept of E.R.O.I. two decades ago, calculates that from the early 1970s to today the return on investment of oil and natural gas extraction in the United States fell from about 25 to 1 to about 15 to 1.

This basic trend can be seen around the globe with many energy sources. We’ve most likely already found and tapped the biggest, most accessible and highest-E.R.O.I. oil and gas fields, just as we’ve already exploited the best rivers for hydropower. Now, as we’re extracting new oil and gas in more extreme environments — in deep water far offshore, for example — and as we’re turning to energy alternatives like nuclear power and converting tar sands to gasoline, we’re spending steadily more energy to get energy....

Without a doubt, mankind can find ways to push back these constraints on global growth with market-driven innovation on energy supply, efficient use of energy and pollution cleanup. But we probably can’t push them back indefinitely, because our species’ capacity to innovate, and to deliver the fruits of that innovation when and where they’re needed, isn’t infinite.

Sometimes even the best scientific minds can’t crack a technical problem quickly (take, for instance, the painfully slow evolution of battery technology in recent decades), sometimes market prices give entrepreneurs poor price signals (gasoline today is still far too cheap to encourage quick innovation in fuel-efficient vehicles) and, most important, sometimes there just isn’t the political will to back the institutional and technological changes needed.

We can see glaring examples of such failures of innovation even in the United States — home to the world’s most dynamic economy. Despite decades of increasingly dire warnings about the risks of dependence on foreign energy, the country now imports two-thirds of its oil; and during the last 20 years, despite increasingly clear scientific evidence regarding the dangers of climate change, the country’s output of carbon dioxide has increased by a fifth.

Homer-Dixon has carved out an impressive career detailing the ways in which resource scarcity and ecological catastrophe will spell doom for the global political economy (Robert D. Kaplan's "The Coming Anarchy" was in many ways a popularization of Homer-Dixon's early work). However, methinks that he's only focusing on one side of the energy question -- the rising cost of supply provision. This is certainly an issue, but it doesn't address a compensating phenomenon -- that the energy-to-GDP ratio is rising even faster.

The McKinsey Global Institute just released an interesting paper that takes a look at this very issue. From the executive summary:

To date, the global debate about energy has focused too narrowly on curbing demand. We argue that, rather than seeking to reduce end-user demand, and thereby the choice, comfort, convenience, and economic welfare desired by consumers, the best way to meet the challenge of growing global energy demand is to focus on energy productivity—how to use energy more productively—which reconciles both demand abatement and energy-efficiency.

According to McKinsey Global Institute (MGI) research, global energy demand will grow more quickly over the next 15 years than it has in the last 15. Demand will grow at a rate of 2.2 per cent per year in our base-case scenario, boosted by developing countries and consumer-driven segments of developed economies. This acceleration in demand growth—particularly problematic amidst escalating world-wide concerns about the growing costs of energy, global dependence on volatile oil-producing regions, and harmful global climate change—will take place despite global energy productivity continuing to improve by 1.0 percent a year.

MGI’s in-depth case studies indicate that there are substantial and economically viable opportunities to boost energy productivity that have not been captured—an estimated 150 QBTUs1, which could represent a 15 to 25 percent cut in the end-use energy demand by 2020. This would translate into a deceleration of global energy-demand growth to less than 1 percent a year, compared with the 2.2 percent anticipated in our base-case scenario—without impacting economic growth prospects or consumer well-being.

I'm concerned about energy scarcity, but I'm not getting my Mathus on by any stretch of the imagination.

posted by Dan at 02:28 PM | Comments (7) | Trackbacks (0)

Korean pessimism about the Doha round

But not the Doha round I'm usually talking about. David Pinto explains

UPDATE: While I'm in a linking mood, here's a link that contributes to blog studies.

posted by Dan at 12:36 PM | Comments (0) | Trackbacks (0)

Wednesday, November 29, 2006

Message of Dr. Daniel Drezner to the President of the Islamic Republic of Iran

Dear Mahmoud,

Got your letter today, thanks. It's much more coherent than that letter you sent about six months ago. I like that you stress the commonalities between what Americans and Iranians want. The repeated references to the notion that, "We are all inclined towards the good, and towards extending a helping hand to one another, particularly to those in need" -- very Carter-esque of you.

You sum up as follows:

It is possible to govern based on an approach that is distinctly different from one of coercion, force and injustice.

It is possible to sincerely serve and promote common human values, and honesty and compassion.

It is possible to provide welfare and prosperity without tension, threats, imposition or war.

It is possible to lead the world towards the aspired perfection by adhering to unity, monotheism, morality and spirituality and drawing upon the teachings of the Divine Prophets.

Then, the American people, who are God-fearing and followers of Divine religions, will overcome every difficulty.

What I stated represents some of my anxieties and concerns.

It's good you got that out in the open.

Here are some of my anxieties and concerns -- which I'm willing to bet many Americans share:

1) You say in your letter that, "Hundreds of thousands of my Iranian compatriots are living amongst you in friendship and peace, and are contributing positively to your society." Do you remember why so many Iranians live in the United States? Do you believe that these Iranians could live peacefully under your regime in Iran?

2) You say in your letter that, "The US administration has undermined the credibility of international organizations, particularly the United Nations and its Security Council." The thing is, Mahmoud, your country is the one willfully ignoring Security Council resolutions. How could these actions do anything but erode the trust of Americans in the UN?

3) When you say that, "our nation has always extended its hand of friendship to all other nations of the world," does this include acts like the Khobar towers bombing or not?

4) You have repeatedly stated that you want a dialogue with the United States. Why, then, have you rebuffed U.S. initiatives to start face-to-face negotiations with your government?

5) You take great pains in your letter to highlight, "the ever-worsening pain and misery of the Palestinian people" and "Persistent aggressions by the Zionists are making life more and more difficult for the rightful owners of the land of Palestine." A two-part question here, Mahmoud -- a) why do you never condemn acts of Palestinian terrorism; and b) in what way would the forced migration of all Israeli Jews not constitute "the trampling of peoples’ rights and the intimidation and humiliation of human beings" that you claim all Iranians abhor?

6) Gideon Rachman has a blog at the Financial Times. Let's excerpt something from a post of his:

My [non-American] interviewee has a longstanding and continuing involvement in the Middle East peace process and personal knowledge of all the major protagonists....

My interlocutor has met President Ahmadi-Nejad and describes him as “truly scary”. He adds that he is used to dealing with populist Arab leaders, “but when you talk to them in private, they are usually quite reasonable and rational. Ahmadi-Nejad is not like that.” His impression is that Ahmadi-Nejad is now calling the shots in Iran, and has intimidated the moderates into silence: “They are all scared of him.”

He believes that Iran is currently stirring up trouble in many different areas including Lebanon, the Israeli occupied territories and Iraq. Iraq he believes is becoming the “arena for a regional power struggle”, pitting Sunnis against Shia.

Interestingly, this appears to be the reaction you provoke among Americans as well. What can you do to dissuade me and mine that you're not a little... er... touched in the head?
You probably notice a theme to these questions -- in all of your letters and interactions with Americans, you seem almost as obsessed with the United States as Lars von Trier. You have not, however, done anything to assuage the fears of Americans and others about the intentions and capabilities of your country. Why are you so mute about your own nation?

Write back as soon as you can!!

Best wishes,

Daniel Drezner

posted by Dan at 03:24 PM | Comments (6) | Trackbacks (8)

"You have a good voice for media-whoring"

Well, I'm paraphrasing:

What American accent do you have?
Your Result: The Midland

"You have a Midland accent" is just another way of saying "you don't have an accent." You probably are from the Midland (Pennsylvania, southern Ohio, southern Indiana, southern Illinois, and Missouri) but then for all we know you could be from Florida or Charleston or one of those big southern cities like Atlanta or Dallas. You have a good voice for TV and radio.

The Inland North
The Northeast
The West
The South
North Central
What American accent do you have?
Take More Quizzes

posted by Dan at 02:47 PM | Comments (1) | Trackbacks (0)

Drezner's iron laws of high school reunions

Your humble blogger attended his twentieth -- yes, I said twentieth -- high school reunion over the Thanksgiving break. Using some of the fancy-pants Ph.D.-level training I've picked up since my high school days, here are some tips for future reunion attendees that might be helpful:

1) Physically and emotionally, the men will have changed much more than the women. This is mostly physiology -- boys mature later, and are the ones who go bald. Plus, if they're very, very lucky, the men will also meet someone who can dress them better than when they were in high school.

2) If you have children, you will save yourself and everyone else a lot of time if you laminate some picture(s) of your offspring and staple them to your forehead.

3) That person you had a crush on in tenth grade? They're still going to look good.

4) Someone will be out of the closet -- with a 50% chance that that person was in your homecoming court (note to Generation Y: this will be reversed for all y'all -- someone who came out in high school will be in a heterosexual marriage, with two kids and a house in Schenectady).

5) WARNING: you will drink more at these functions than you probably should.

6) There will always be at least one woman who has given birth to many children in recent years but look like they could do a guest-hosting stint on E!'s Wild On series.

7) At any point during the reunion, you will observe a large number of women congregating near the bathroom, whispering to each other and giggling every five seconds.

8) Someone's going to bring their high school yearbook.

9) The food will leave something to be desired.

10) Unless he or she attended your high school, under no circumstances should you subject your spouse to this function. [Against the Geneva Conventions?--ed. Only if you think boring someone to death is a form of torture.]

As a public servive, readers are hereby requested to suggest their own covering laws.

UPDATE: James Joyner weighs in: "Women, much more than men, still define themselves by who they were in high school. Possible exceptions include men who were star athletes or otherwise peaked as teenagers."

Hmmm... I wonder if this applies to math team captains.....

posted by Dan at 08:48 AM | Comments (8) | Trackbacks (2)

Tuesday, November 28, 2006

Google-Earthing Bahrain

Democratic activists in the United States achieved some success in Google-bombing Republican candidates during the 2006 midterms. Now, Passport's Mike Boyer reports that Bahraini cyberactivists are exploiting Google tools for their legislative elections:

In the run-up to the country's parliamentary elections this Saturday, cyber-activists in Bahrain are using Google Earth to highlight the excesses of the ruling al-Khalifa family. It's always surprised me that more authoritarian regimes do not block access to Google Earth. Bahrain has tried in the past, but its efforts to do so proved mostly futile. And since Google ratcheted up the resolution of its images of Bahrain, Google Earthing the royal family's private golf courses, estates, islands, yachts, and other luxuries has become a national pastime. Most Bahrainis have long known that these things existed, but they've been hidden behind walls and fences.

posted by Dan at 03:37 PM | Comments (0) | Trackbacks (1)

An all poli sci bloggingheads!!!

Two political scientists matching wits on How can you not check it out?

See Henry Farrell and I debate Iraq, U.S. trade policy, David Horowitz, and Jacob Hacker by clicking here.

UPDATE: We managed to keep Laura McKenna awake!! Woo-hoo!

posted by Dan at 08:40 AM | Comments (0) | Trackbacks (0)

Monday, November 27, 2006

Mickey Kaus' dream article

Ken Auletta's New Yorker story on CNN and Lou Dobbs has a Mickey Kaus two-fer -- potshots at CNN president Jonathan Klein and a discussion of how a hard line on illegal immigration has boosted Lou Dobb's ratings!!

Here are the parts of the article I enjoyed the most:

In many ways, Dobbs and Bill O’Reilly, of Fox News, who in 2003 wrote a book entitled “Who’s Looking Out for You?,” are kindred spirits. Dobbs, who lives on a three-hundred-acre farm in a prosperous part of New Jersey, admires his own capacity for compassion and self-effacement....

Unlike Fox, whose identity among its core viewers is often described as a celebration of conservatives, CNN seems to have adopted a “We’re on your side” stance as a way to boost ratings. It was encouraged by Dobbs, but also by Cooper, who expressed his outrage at the federal response to Hurricane Katrina, and by Jack Cafferty, in cranky commentaries on Wolf Blitzer’s “The Situation Room.” For nine nights in October, CNN ran a series called “Broken Government,” as well as two hour-long Dobbs town-hall meetings—the first on the “forgotten middle class,” the second on illegal immigration. CNN’s ratings improved dramatically, particularly among the most desirable demographic, twenty-five- to fifty-four-year-olds....

For some years, CNN has billed itself as “The most trusted name in news.” (A recent Pew poll, however, suggested that there is little difference in credibility among the cable news networks; the poll also noted that the number of Americans who said they believed “all or most” of what CNN reported has fallen from forty-two per cent to twenty-eight per cent since 1998.)....

Five correspondents work for Dobbs, and during the second half hour they usually report on a story that Dobbs treats as a scandal, and that he invariably describes as “outrageous,” “alarming,” “idiotic,” “disgusting,” or “sickening.” On the air, Dobbs’s reporters appear deferential. On August 16th, Christine Romans filed a report describing how the town of Hazleton, Pennsylvania, “decided to fight illegal immigration itself” by fining landlords a thousand dollars a day for knowingly renting to illegal aliens and by denying business permits to companies that hire them. In an interview with an A.C.L.U. official who opposed the law, she allowed him a single on-camera sentence; the mayor, who supported the measure, had seven lines and the last word. In a colloquy with Romans in the studio, Dobbs was told that the A.C.L.U. said that if voters were unhappy with federal laws they could always vote for new members of Congress. “Why doesn’t that apply, then, to the local community,” Dobbs asked, “and why are they interfering there, I wonder?”

“That’s a very good point, Lou,” Romans said.....

Dobbs believes that the middle class, which he has described as being composed of two hundred and fifty million Americans, is taken for granted, an argument that could be challenged by those who point to the growth of middle-class entitlement programs, including Social Security and Medicare, or to the unwillingness of elected officials to offend this constituency by curbing entitlements....

In conversation, he does not harbor much doubt. One day, in his fifth-floor office at CNN’s Columbus Circle headquarters, I mentioned that Henry Kissinger has said that many of the decisions he made as Secretary of State were sixty-forty choices, meaning that the opposing argument could claim forty per cent of the truth. Did the “rock hard” truths that Dobbs once told me he believed in exclude the possibility that the other side could claim twenty per cent, or even forty per cent, of the truth?

“In free trade?” he said. “In illegal immigration? In education? No. Everything I believe, I believe unequivocally.”....

One of Jon Klein’s stated aims has been to persuade the producers of CNN’s various programs to widen their vision (he speaks of them climbing out of their “silos”)—to make sure that, say, when Anderson Cooper travelled to Africa other CNN programs, from “The Situation Room” to Paula Zahn’s broadcast, would welcome his reports. Yet the dispatches filed by Dobbs’s correspondents are rarely welcomed. The senior CNN employee says that “other shows are not comfortable with them,” because too many of these reports are on Dobbs’s pet subjects and the reporters are widely perceived to be Dobbs’s acolytes, feeding him the alarming news that he wants.

“I think he’s the most influential political reporter of the time, certainly over the last year,” Klein told me. “He’s someone politicians ignore at their peril.” Klein cited Dobbs’s response to the Dubai ports deal: for fifteen evenings, Dobbs spoke about “the outrage” of allowing a Middle Eastern country “with ties to the September 11 terrorists” to operate six American ports. Dobbs certainly was not the only person to raise questions, but the resulting furor eventually prompted Dubai to abandon the plan. Slate recently wrote that Dobbs’s brand of economic nationalism had been reinforced by the results of the midterm elections, in which many Democrats expressed Dobbsian viewpoints. As for the “illegal immigration” story, Dobbs provided a nightly stage for like-minded members of Congress to express their opinions, an exposure that he believes helped to shift Congress’s agenda....

Some journalists at CNN worry that Dobbs harms the network’s credibility. John King says that he likes Dobbs and admires his talent, but adds, “Lou clearly has strongly held beliefs, and he’s decided to share these beliefs. In doing that, does it sometimes cause concern in the company? Yes.” Klein admits that he wants to “increase the audience’s intensity,” but not in the way he believes that Fox has. “They have a clear brand identity,” he says of Fox, “which does not afford them as many places to go when their viewership dips. They have a definite right-of-center view of the world. Most of their hard-core viewers are older; sixty-five-plus is their median age”—CNN’s median age is about sixty-one. “When you define yourself that way, it’s very hard to move to the center without alienating the core audience. I’d rather be playing our hand now. By focussing on news, there is much more we can do.” In response to Klein’s remarks, a senior Fox executive called him hypocritical for saying that he was pushing serious news, when, according to the executive, he was still running soft news and taking CNN “on a hard tack to the left.” The executive said of Dobbs, “He has tapped into strong opinion. He’d be good on Fox.”

posted by Dan at 04:21 PM | Comments (6) | Trackbacks (0)

Living and breeding in sin in Europe

The European Union just released 2004 data on ferility rates for the EU 25 countries. Here's the interesting chart:

As you can see, there appears to be a positive correlation between higher birth rates and the percentage of births outside of wedlock.

Is this driving the results? Not necessarily. In a 2004 Journal of Population Economics paper, Alicia Adsera provided another explanation for the variation in birth rates: the structure of labor markets:

During the last two decades fertility rates have decreased and have become positively correlated with female participation rates across OECD countries. I use a panel of 23 OECD nations to study how different labor market arrangements shaped these trends. High unemployment and unstable contracts, common in Southern Europe, depress fertility, particularly of younger women. To increase lifetime income though early skill-acquisition and minimize unemployment risk, young women postpone (or abandon) childbearing. Further, both a large share of public employment, by providing employment stability, and generous maternity benefits linked to previous employment, such as those in Scandinavia, boost fertility of the 25–29 and 30–34 year old women.
To read a draft of the whole thing, click here.

posted by Dan at 03:48 PM | Comments (1) | Trackbacks (0)