Is Spain the next Domino?

And the dominos keep falling, this time it is Spain. Again, they spend more than is brought in via tax revenue so they need to go to financial companies ("bankers") to buy the bonds to finance a government they can not afford. When the bill comes due the government realizes they need to curb spending and protests break out. A sad script playing out before us and it may not be too long before we see it in the US. The money quote:

On Sunday, protesters insisted that workers and the unemployed would not passively accept spending cuts to help ease a crisis they had no role in causing.

"The banks and the governments that caused this situation must know that we do not agree with the measures and the budget cuts, that we intend to be heard", the "indignants" movement said in its call for nationwide protests.

Greece and Austerity

As the previous post points out, Greece is in trouble. To get out of this trouble (as we talked about in class) they rely on the bonds market. The only way people will finance this spending (by buying their bonds) they need assurances that the spending will get under control. This results in what the media calls "Austerity" movements.

The problem arises when its citizens do not accept the fact that they are basically broke. They need to curb the spending and increase taxes to satisfy the bonds market. It appears as if they are catering to the Wall Street element, but it is really like learning to live within your means. This is the problem going on now in Greece as protests cripple the nation.

Dominos

Deficits are financed by issuing bonds. When the credit rating falls for those bonds, it signals an increased risk of default. This is currently the case in Greece (no nation is rated lower). When those bonds fail, those that hold those bonds suffer. This is one major reason why the nations in Europe are so closely intertwined. Why many of those nations are suffering because of their neighbors (Iceland, Ireland, Greece, UK, etc…). It is why when Spain and/or Portugal get into the same problem that Greece is in the other will feel it. And here is news of private US companies intertwined with Greece. Not good.

Jobs

Bad news in the jobs market. More evidence that this economy is slow to recover with more questions of if this is the new way of things.

Here is a scarry stat:

a stalled job market with a scant 54,000 jobs created in May

Now consider this, it takes about 130,000 to 150,000 jobs per month to replace the retirees.

Fannie and Freddie

Here is a past post to check out. Look up the Fannie and Freddie podcasts from NPR to get an idea of what they are and how they contributed to the housing/financial crisis.

QE3?

Many of the problems Americans face can be dealt with by creating some inflation in our country. Most of our debt is in nominal, not real terms (something we will get into more later). We have the cost of our mortgage exceeding what we can pay (evident by the large default numbers) and we have a national debt too large (in many people's opinion at least). If we had some inflation this would "ease" these problems that households and our nation faces. So how do we get inflation? By a process called "Quantitative Easing" and for the first time it looks like we may do round three of this, thus Quantitative Easing Three (QE3). We will talk more about this later, but it steps outside the typical Federal Reserve actions.

Student Teachers

Local school districts have no money. Voters are turning down propositions for increasing spending. The unions refuse to give enough concessions. The result is squeezing wherever the districts can squeeze. Unfortunatly for those trying to become teachers things just got worst in Medford NJ (where I live). Now the student teachers may have to PAY for the right to student teach.

Global Poverty

Here is a good Op-Ed piece in the NY Times on Financial Aid. One very interesting paragraph, and a nice complement:

When I was in college, I majored in political science. But if I were going through college today, I’d major in economics. It possesses a rigor that other fields in the social sciences don’t — and often greater relevance as well. That’s why economists are shaping national debates about everything from health care to poverty, while political scientists often seem increasingly theoretical and irrelevant.

Hemp for Victory

Via ‘Marginal Revolution’ we get this link for legalizing Hemp. Plenty of interesting information, but what is perhaps the most interesting is that it was made by the US government.

(No you can not cite this as a source on your position paper)

Allocating Cuts in Education

Our government is spending more than the taxes it takes in. This has gone on for a while, and happens on all levels of government (federal, state, and local). Lately the states have done so with the help of the stimulus package a couple of years ago. It just ran out and the states have to figure out how to deal with that problem.

Step one seems to be accepting this fact and taxing more or spending less (the latter in the case of PA). Step two is who to tax or who to cut. This article seems to move from step one into step two of this process for education. In other words, how should the state properly allocate the cuts more efficiently?

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College Football Helmet Stickers

Economics is all about incentives. When a college football player does well (in many schools) they get a sticker on the helmet. This is an interesting piece on the incentives this creates for the players. Mony quote:

Now, a study published this month in the online journal PLoS ONE, has given a fresh perspective on this practice: When small rewards become visible trophies of status within a group, male players change their approach in competition, sacrificing their own best interest to serve the needs of the team.

Higher Ed the Next Bubble?

This is an interesting piece. I personally never heard of Peter Thiel, but that should not indicate that what he says is not relevant. If this is true I wonder how it would all play out. The money quote:

Instead, for Thiel, the bubble that has taken the place of housing is the higher education bubble. “A true bubble is when something is overvalued and intensely believed,” he says. “Education may be the only thing people still believe in in the United States. To question education is really dangerous. It is the absolute taboo. It’s like telling the world there’s no Santa Claus.”

Like the housing bubble, the education bubble is about security and insurance against the future. Both whisper a seductive promise into the ears of worried Americans: Do this and you will be safe. The excesses of both were always excused by a core national belief that no matter what happens in the world, these were the best investments you could make. Housing prices would always go up, and you will always make more money if you are college educated.

HT: The big lead

Correlation vs. Causation

This site offers plenty of correlation examples. Thinking about possible causations can be time consuming. (HT: Freakonomics)

Solving the Deficit

The article we went over in class. Try solving the deficit on your own and see what our Federal Government looks like. Imagine the political will it would take to do it.

Fannie and Freddie

We spoke about TARP in class and mentioned the issue of Fannie and Freddie (the quasi private mortgage giants). This is an excellent piece (I think it is the first piece actually). It is worth listening to (click on the "Listen to the Podcast" link)

Update I: Here is an interesting article about how the executives for Fannie and Freddie were paid millions. Tough to justify the heads of these failed organizations millions in salaries from taxpayers.

Update II: Part 2 here and Part 3 here

Please be sure to at least listen to the first one.

Instability Helping Some

The foreign turmoil (especially in the Mid East) has obviously hurt many nations. But as we learn in class, those relying on oil exports are sometimes helped by the increase in oil prices. Here is evidence of this.
If you are wondering just how much OPEC is being affected by this turmoil just take a look at the members of the organization here.

Fed to Become More Open

The Federal Reserve has always been a secretive organization. They have often argued (with justification in some cases) that with greater transparency would come less power. In other words their policies require that no one actually knows what they are doing. This makes sense in many respects. But calls for more openness have occurred as the years have gone by.

They have a branch (called the FOMC) that meets regularly to determine Monetary Policy. Once upon a time it was months before they even disclosed what was talked about in that meeting. Then they changed the rules that ended up reducing the time of disclosure. Now there are greater calls for openness (and many are asking for auditing the Fed) and it appears as if they have changed the rules once again.

The Book Industry

Technological shocks are known to alter industries. One way is when the new technology changes the way people people can make money providing the product. Take for example TV and radio. When these industries began people struggled with an economic system centered around a product that you could not exclude people from (until they mastered the art of marketing). This is going on today in the journalism industry as well as the book industry. This is an excellent example of the industry trying to change to keep up with technology shocks. These issues are excellent ones for position papers as well.

Game Theory in the NBA

We can use Game Theory in just about anything. This is a great example of it being used in the NBA.

NFL Labor Fight

For you sports fans, there is a fight starting between the NFL and the NFL PA (NFL Players Association). This is a win for the NFLPA.

The NFL and NFLPA have an agreement that when the NFL negotiates TV contracts it has to try to get the best deal it can. This is relevant to the NFLPA because they share some of the revenue. But the NFL knew there was a new Collective Bargaining Agreement (CBA) that was going to be negotiated between the NFL and NFLPA. They wanted to do what the NBA did, which was get a TV contract that guaranteed them revenue even if there was a lockout (the owners don’t allow the players to play) or a strike (the players decide not to play). To get this they had to sacrifice funds that the NFLPA was apparently entitled to. At least that is what the judge ruled. To quote from the article:

In his 28-page ruling, Doty criticized special master Stephen Burbank for legal errors and erroneously concluding earlier this month that the NFL can act like a self-interested conglomerate when in fact it is bound by legal agreements to make deals that benefit both league and player.

Doty instead declared that the NFL violated its agreement with the union, which had asked that the TV money be placed in escrow until the end of any lockout. A hearing, yet to be scheduled, will be held to determine potential damages for the players as well as an injunction involving the TV contracts.

I have not had enough time to read up on the issue but my initial thoughts are that the NBA was able to do this, so why not the NFL. They both share very similar legal standings in that they both have limited Anti-Trust exemptions. Very curious.

Future of Education

There is plenty of uncertainty associated with the future subsidizing of education by the Federal Government. This is apparent in the fight in states fighting with their teacher unions. Two good opinion pieces (good for perceptive, not so good for citations on position papers) are found in the NY times. The first by the left leaning Paul Krugman. The second by right leaning David Brooks.

Unions

Plenty of information out there on unions and the role they play in our economy. This is esecially the case now that states are considering limiting their power to collectivly bargin. There is a great recent Q and A piece. This is more from a previous post. Enjoy

More on Debt

Another interesting piece on our National Debt. This time it does not come from an Op-Ed piece. A slightly different angle, interesting non the less. This issue is not going way.

Options When it Comes to Debt

Here is a good piece be David Brooks (from the NY Times... Op-Ed). He points out how unrealistic it is to get a handle on our debt problems by small tweeks in our spending. His point is that we have to change what we think of our role of the government. Money quote:

The coming budget cuts have nothing to do with merit. They have to do with the inexorable logic of mathematics. Over the past decades, spending in nearly every section of the federal budget has exploded to unsustainable levels. Each year, your family’s share of the national debt increases by about $12,000. By 2015, according to Douglas Holtz-Eakin, the former director of the Congressional Budget Office, Moody’s will downgrade U.S. debt.

Rent Controls

A recent and relevent article on rent controls in NY. (H/T: Mankiw)

Higher Education and Competition

The economics of higher education is an interesting one (and an excellent final position paper for those looking for a good topic). There is the difference between teaching universities vs. research universities (Temple is the latter). There is the competition between private universities vs. public universities (Temple the latter). And as highlighted in this article the difference between wealthy universities with large endowment vs. relatively poor ones with small endowments (again, Temple is the latter).

This has been very relevant lately. The reason is that the government has been pushing the wealthy universities to spend some of that endowment money to help the students. The result (to quote the article):

"Getting into Harvard is like winning the lottery twice," said Barmak Nassirian, an executive with the American Association of Collegiate Registrars and Admission Officers. "You're getting into Harvard, and if you don't have the adequate resources, you're getting into an institution that has the financial resources to package you properly."

So the natural question that comes up for economists are "should these universities have to spend their endowmnets?" and if so, "how does a place like Temple University (without those endowments) compete with the larger wealthy institutions?"

Chick-fil-A

Should a business have any objectives other than making as much money as possible? Two recent articles address this issue. The first takes on the issue much like our taking sides issue #1 does. (H/T Zhao) The second speaks specifically about the Chick-fil-A fast food chain. They have a reputation of being very Christian. I can think of two cases in which this may go against the profit maximizing objective. They close on Sundays and their stances on controversial issues may bring bad publicity. Over time either these practices will diminish, or competition will drive them out. (Their sandwiches are very good)

Chicago Mayor Race

For a while the courts said that Emanuel could not run as mayor of Chicago. Now the case is being heard in the State Suprem Court. Since is is the clear favorite if he is allowed to run this information quickly changes the intrade odds of him winning as see by this chart. This is shown in the image as the price fluxuates rapidly. A perfect example of information flowing quickly for this contract as we would expect in any efficient marketplace.

Health Care and the Debt

There is plenty of confusion about connection between the Health Care legislation and our current fiscal situation. The main question is if repeal of the Health Care legislation would reduce or expand the deficit. This piece clarifies quite a bit.

Matt Ridley's Talk

A good discussion about economic progress over the years in an interesting way.

Welcome Spring 2011

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