Wednesday, October 28, 2009
SuperFreakonomics
Steven Levitt has been getting lot of heat over his new book 'SuperFreakonomics'
Let's look at the criticism they are facing and their defence.
http://www.standupeconomist.com/blog/economics/climate-change-in-superfreakonomics/
http://krugman.blogs.nytimes.com/2009/10/17/superfreakonomics-on-climate-part-1/
http://freakonomics.blogs.nytimes.com/2009/10/17/the-rumors-of-our-global-warming-denial-are-greatly-exaggerated/
http://krugman.blogs.nytimes.com/2009/10/17/weitzman-in-context/
http://freakonomics.blogs.nytimes.com/2009/10/23/the-superfreakonomics-global-warming-fact-quiz/
http://freakonomics.blogs.nytimes.com/2009/10/18/global-warming-in-superfreakonomics-the-anatomy-of-a-smear/
http://online.wsj.com/article/SB10001424052748704335904574495643459234318.html
Let's look at the criticism they are facing and their defence.
http://www.standupeconomist.com/blog/economics/climate-change-in-superfreakonomics/
http://krugman.blogs.nytimes.com/2009/10/17/superfreakonomics-on-climate-part-1/
http://freakonomics.blogs.nytimes.com/2009/10/17/the-rumors-of-our-global-warming-denial-are-greatly-exaggerated/
http://krugman.blogs.nytimes.com/2009/10/17/weitzman-in-context/
http://freakonomics.blogs.nytimes.com/2009/10/23/the-superfreakonomics-global-warming-fact-quiz/
http://freakonomics.blogs.nytimes.com/2009/10/18/global-warming-in-superfreakonomics-the-anatomy-of-a-smear/
http://online.wsj.com/article/SB10001424052748704335904574495643459234318.html
Monday, October 12, 2009
And the 2009 Economics Nobel Goes to....
Michael Spence, chairman of the Commission on Growth and Development, 2001 Nobel laureate for economics and a senior fellow at Stanford's Hoover Institution explains the contribution of this year's Nobel laureates adding that Markets aren't everything.
The Nobel Prize this year recognizes two distinguished scholars, Elinor Ostrom and Oliver Williamson, one a political scientist and the other an economist. The press has noted that Professor Ostrom is the first woman to receive the prize in economic sciences. This is to be celebrated, as is the likelihood that we can anticipate many more to follow in the years to come. Women in many subfields of economics are now among the intellectual leaders and innovators.
The common theme underlying the prize this year is that markets do not solve all problems of resource allocation and incentives well or even at all. That is not a new idea. What is important is that people and societies find ways through organizational structures and arrangements, political and other institutions, values, incentives and recognition, and the careful management of information, to solve these problems. Professors Ostrom and Williamson have led the development of this increasingly important part of economics. In reading their work, you are impressed that economics is not really fundamentally about markets, but about resource allocation and distribution problems. Markets appear because they operate effectively to handle a subset of these resource allocation challenges. Alternative creative institutional arrangements have been devised and refined over time to deal with those that markets handle imperfectly.
Sometimes those institutional arrangements include "creating" markets as has been done with some effluents that affect air quality. But often this approach is impossible or impractical because of monitoring and other costs.
The deeper insight that these scholars have helped us to come to understand is that there are many circumstances in which non-cooperative outcomes (nash equilibria) are deficient or sub-optimal, and that a good part of economic and social progress lies in the creative design of institutions whose purpose is to cause these non-cooperative equilibria to come closer to socially and economically efficient and fair results.
Climate change is a commons problem on a global scale with the added complication that collective action is designed not directly to produce results (in the sense of temperature reduction), but rather to acquire tail insurance by shifting the probability distributions against outcomes that are highly destructive but not certain to occur. Though some are not convinced this is a problem worth acting on, a majority globally recognize that there are risks to be taken seriously. This may be the most complex commons problem we have yet faced. We are in the midst of shifting values with respect to energy efficiency and clean technology. The challenge is to design institutions, mechanisms and incentives that move us in the right direction.
But many would argue that the most challenging problems are those associated with knowledge and information. Here Professor Ostrom and Williamson have had a major impact on our understanding.
Knowledge is, for the most part, the shared (read commons) intangible asset on which growth, development and prosperity is based. Though there are proprietary market add-ons designed to create or enhance incentives for innovation, the broad corpus is augmented, shared and transmitted through an extraordinarily complex and evolving set of institutional arrangements that include educational institutions, firms, multinational organizations, and governments. It has long been known that knowledge is an "unusual" economic commodity, in that if you have it and you give or transmit it or even sell it to me, then we both have it. The costs of creating the knowledge are a lot higher than the costs of sharing it. If it is priced efficiently to cause the sharing to occur, the incentives to produce it may be damaged, and vice versa.
Solutions have combined the inculcation of values, trust, incentives, partial use of market mechanisms, institutions and public sector investments. It is a work in progress as new challenges arise, but also an extraordinary success story.
George Akerlof received the Nobel Economics Prize for his analysis of how markets perform when there are asymmetric informational gaps and private information that is not easy to share. His persuasive short answer was "quite badly" with great insight as to why. One could leave it there. But of course, as this years Nobel Prize winners have taught us, institutions including business firms are created in part to solve these resource-allocation problems where markets fail. They do this by changing the informational and incentive structures that plague market performance. Professor Williamson has been at the forefront of understanding these processes, in asking what part of resource allocation is done within the firm and when is the process turned over to the market, or as the Nobel Prize Committee put it, what determines the boundary between the firm and the market.
The prizes this year can be celebrated in recognizing two highly original scholars and in so doing, highlighting the important parts of economics, political science and political economy that they have done so much to build.
Update: Paul Romer's praise
What happened to global warming?
This headline may come as a bit of a surprise, so too might that fact that the warmest year recorded globally was not in 2008 or 2007, but in 1998.
But it is true. For the last 11 years we have not observed any increase in global temperatures.
And our climate models did not forecast it, even though man-made carbon dioxide, the gas thought to be responsible for warming our planet, has continued to rise.
So what on Earth is going on?
Climate change sceptics, who passionately and consistently argue that man's influence on our climate is overstated, say they saw it coming.
They argue that there are natural cycles, over which we have no control, that dictate how warm the planet is. But what is the evidence for this?
During the last few decades of the 20th Century, our planet did warm quickly.
 Recent research has ruled out solar influences on temperature increases |
Sceptics argue that the warming we observed was down to the energy from the Sun increasing. After all 98% of the Earth's warmth comes from the Sun.
But research conducted two years ago, and published by the Royal Society, seemed to rule out solar influences.
The scientists' main approach was simple: to look at solar output and cosmic ray intensity over the last 30-40 years, and compare those trends with the graph for global average surface temperature.
And the results were clear. "Warming in the last 20 to 40 years can't have been caused by solar activity," said Dr Piers Forster from Leeds University, a leading contributor to this year's Intergovernmental Panel on Climate Change (IPCC).
But one solar scientist Piers Corbyn from Weatheraction, a company specialising in long range weather forecasting, disagrees.
He claims that solar charged particles impact us far more than is currently accepted, so much so he says that they are almost entirely responsible for what happens to global temperatures.
He is so excited by what he has discovered that he plans to tell the international scientific community at a conference in London at the end of the month.
If proved correct, this could revolutionise the whole subject.
Ocean cycles
What is really interesting at the moment is what is happening to our oceans. They are the Earth's great heat stores.
 |   In the last few years [the Pacific Ocean] has been losing its warmth and has recently started to cool down  |
According to research conducted by Professor Don Easterbrook from Western Washington University last November, the oceans and global temperatures are correlated.
The oceans, he says, have a cycle in which they warm and cool cyclically. The most important one is the Pacific decadal oscillation (PDO).
For much of the 1980s and 1990s, it was in a positive cycle, that means warmer than average. And observations have revealed that global temperatures were warm too.
But in the last few years it has been losing its warmth and has recently started to cool down.
These cycles in the past have lasted for nearly 30 years.
So could global temperatures follow? The global cooling from 1945 to 1977 coincided with one of these cold Pacific cycles.
Professor Easterbrook says: "The PDO cool mode has replaced the warm mode in the Pacific Ocean, virtually assuring us of about 30 years of global cooling."
So what does it all mean? Climate change sceptics argue that this is evidence that they have been right all along.
They say there are so many other natural causes for warming and cooling, that even if man is warming the planet, it is a small part compared with nature.
But those scientists who are equally passionate about man's influence on global warming argue that their science is solid.
The UK Met Office's Hadley Centre, responsible for future climate predictions, says it incorporates solar variation and ocean cycles into its climate models, and that they are nothing new.
In fact, the centre says they are just two of the whole host of known factors that influence global temperatures - all of which are accounted for by its models.
In addition, say Met Office scientists, temperatures have never increased in a straight line, and there will always be periods of slower warming, or even temporary cooling.
What is crucial, they say, is the long-term trend in global temperatures. And that, according to the Met office data, is clearly up.
To confuse the issue even further, last month Mojib Latif, a member of the IPCC (Intergovernmental Panel on Climate Change) says that we may indeed be in a period of cooling worldwide temperatures that could last another 10-20 years.
The UK Met Office says that warming is set to resume
Professor Latif is based at the Leibniz Institute of Marine Sciences at Kiel University in Germany and is one of the world's top climate modellers.
But he makes it clear that he has not become a sceptic; he believes that this cooling will be temporary, before the overwhelming force of man-made global warming reasserts itself.
So what can we expect in the next few years?
Both sides have very different forecasts. The Met Office says that warming is set to resume quickly and strongly.
It predicts that from 2010 to 2015 at least half the years will be hotter than the current hottest year on record (1998).
Sceptics disagree. They insist it is unlikely that temperatures will reach the dizzy heights of 1998 until 2030 at the earliest. It is possible, they say, that because of ocean and solar cycles a period of global cooling is more likely.
One thing is for sure. It seems the debate about what is causing global warming is far from over. Indeed some would say it is hotting up.
Sunday, October 11, 2009
The Bank Everyone Loves to Hate:WSJ
WSJ as usual defends Corporations against left wing attacks.
Rightly or wrongly, a business occasionally is picked out by the fates to serve as the "unacceptable face of capitalism"—a term coined by the late British Prime Minister Edward Heath. Goldman Sachs, for a lot of people, is today's UFC.
The kinder jokes refer to the legendary investment firm as "Government Sachs," because of its connections to former Treasury Secretary Hank Paulson (once a Goldman CEO) and other alumni who, as Washington officials, had hands in last year's financial crisis rescue operations. More rudely, a writer in Rolling Stone magazine likened Goldman to a "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."
Of the five major investment banks that walked the earth little over a year ago, only two survive—Goldman and Morgan Stanley. Lehman is dead; Bear Stearns and Merrill have been absorbed by commercial banks. Even in surviving, the cost in reputation for Goldman has been unmistakably if obscurely higher than for its fellow survivor, Morgan Stanley.
read more
Rightly or wrongly, a business occasionally is picked out by the fates to serve as the "unacceptable face of capitalism"—a term coined by the late British Prime Minister Edward Heath. Goldman Sachs, for a lot of people, is today's UFC.
The kinder jokes refer to the legendary investment firm as "Government Sachs," because of its connections to former Treasury Secretary Hank Paulson (once a Goldman CEO) and other alumni who, as Washington officials, had hands in last year's financial crisis rescue operations. More rudely, a writer in Rolling Stone magazine likened Goldman to a "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."
Of the five major investment banks that walked the earth little over a year ago, only two survive—Goldman and Morgan Stanley. Lehman is dead; Bear Stearns and Merrill have been absorbed by commercial banks. Even in surviving, the cost in reputation for Goldman has been unmistakably if obscurely higher than for its fellow survivor, Morgan Stanley.
read more
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