New Economist

Oregon Wild Fish Face Extinction

by Mark Thoma

I live in the state of Oregon, so this story caught my eye.  I hope you don’t mind my using this platform to bring the issue of environmental externalities to wider attention.  It’s an issue I hope people are concerned about far beyond our state or national borders:

Half of Oregon's wild fish face extinction, Seattle Post-Intelligencer (AP):  The first status report on wild fish in a decade suggests that nearly half the native species in Oregon are at risk of extinction. Oregon Department of Fish and Wildlife biologists studied 69 distinct fish populations, including all varieties of the state's salmon and steelhead species, and most of the trout population. They also assessed selected sturgeon, lamprey, dace and chub species listed under the Endangered Species Act. Eleven of the 33 salmon and steelhead populations are at risk of irreversible decline, and seven are potentially at risk, ... Eight historic populations have gone extinct in the past century, most of them concentrated in upper reaches of the Snake and Klamath rivers cut off from migrating fish by the construction of power-generating dams. …Among trout species, such as redband and bull trout, 17 of 27 unique populations are at risk, five are potentially at risk and four are not at risk.

…Biologists concluded that almost half the state's unique wild fish stocks are at risk of slipping further toward extinction within five to 10 years. … Bill Bakke, head of the Native Fish Society, a conservation group, said wild fish are probably in even worse shape than the report suggests. "The bar they are using for conservation is really low," Bakke said. "Even with the low-bar criteria, there are a lot headed toward extinction."…

The Star Economy

By Edward Hugh

The reference in the title is not an ironic one about what the eurozone isn't, rather it connects with some arguments put forwarded in the Bob Hall paper which has caused so much fuss around the blogs of late. Without going into unnecessary details, Hall makes a lot of uncontroversial points, one of which is:

The traditional idea is that neoclassical constructs—production functions, consumption demand functions, labor supply functions, embedded in markets that clear—describe the actual operations of the economy in the longer run. There is a *-economy that generates variables such as y*, called potential GDP, U*, called the natural unemployment rate, r*, called the natural real interest rate, and so on...

Because of the difficulties involved in introducing these hypothetical constructs Hall himself concludes that  "the idea of a *-model will gradually disappear from macroeconomics and from policy making". In tend to agree with him that this is desireable at the theoretical level, although as a rule of thumb guide  the idea of an 'output gap' may have some utility. But what I am clear about, and I suspect that Mark may not be so aware of, is the way in which the eurozone could be considered to be  a two star economy, but unfortunately these aren't the sort of stars that would normally get you considered for a Michelin guide entry.

Pooring It All Away

By Edward Hugh

Atanu Dey is in Singapore, scratching his head in disbelief at how far forward the island state has come, and how far backwards India has drifted in comparison. But it was a post from earlier in the week that really caught my eye.

In a land where reportedly every generalization is trivially true, one generalization holds non-trivially and with overwhelming force. It is this: Indian governments are pro-poor. Every policy that any government ever espouses, fundamentally it always is pro-poor, irrespective of any minor variations such as pro-market or pro-planning or pro-industrialization or pro-globalization or pro-self sufficiency or whathaveyou.

The Fed versus the ECB: Learning Models and Monetary Policy

By Mark Thoma

I want to continue the conversation started here and here on differences between the U.S. Federal Reserve (Fed) and the European Central Bank's (ECB) approaches to monetary policy.  The difference I want to talk about today is more speculative than the others, but it’s not one I’ve seen mentioned much elsewhere so perhaps it will be a useful issue to raise in any case.  I should warn you that the post is somewhat long and may presume some, but hopefully not too much, knowledge of terminology.

Suppose we adopt the view, as I think both central banks have, that neither private sector agents nor central bank officials have perfect information on either the structure of the economy or on the particular parameters essential to understanding how the economy operates.  Thus, acording to this view, there are two sets of agents that must learn about the economy.  Private sector agents must learn about the structure of the economy and about the policy rule, and they must understand how the two interact.  Central bank officials face a similar problem except it is assumed they know the policy rule that is in place.  Both the Fed and the ECB recognize that learning must take place, and both understand that learning is a problem faced by both central bank officials and private sector agents.  For example, here are comments recognizing each type of learning from Jean-Claude Trichet, President of the European Central Bank (ECB) made recently at the Fed Symposium in Jackson Hole:

Dangerous Nonsense

by Edward

The (old) Economist has a very irresponsible lead to its report on Katerina in the online Global Agenda  section:

Hurricane Katrina is already known to have killed dozens along the Gulf of Mexico coast, with the death toll expected to rise as rescuers reach more affected areas. Besides its devastating cost in lives, Katrina could push the American economy—maybe even the world economy—into recession.

The UK Economy, Direction Unknown

by Edward

Well here I am back again. But just a snippet. Our host here follows developments in the UK economy copiously, so in his absence let me keep this blog up to date. The FT notes that outstanding mortgage debt rose between June and July at the slowest rate in 3 years, and unsecured consumer credit rose more slowly than expected. On the back of this comes news that retail sales fell for the sixth consecutive month according to a CBI survey.

I am sure these two pieces of information are connected, and US readers would be well advised to follow the UK trajectory closely from here on in for any clues  about the future course of events on the other side of the Atlantic. More thoughts and analysis on this from the New Economist himself when he gets back into the driving seat. 

The Brazilian Brothers in Arms

By Edward

I'm supposed to be limited to one post a day, but sometimes I'm uncontrollable: the madman trying to break-into the madhouse. This will be short. Bloomberg draws our attention to the increasing flow of Brazilian migrants across the permeable frontier. This shouldn't last too long as TFR in Brazil is now down to 2.4 and I for one think Brazil is finally taking-off economically speaking.

But still the surge does highlight one parameter I forget to mention: rapid changes in wealth. Brazil's 'structural reforms' (like China's) are having some success, but (again like China's) they are painful, and there are victims. Sometimes tilting the ship's deck ever so slightly can send people running for the lifeboats. This I think is the Brazilan case right now.

Oh, Where Do All The Migrants Go...?

By Edward

The permeability of the US's southern border seems to be a bit of a buzz issue at present. The origins of the current bout of navel-gazing about immigration  seem to lie in a Public Agenda survey carried out on behalf of Foreign Affairs magazine.   

As The Economist points out, for Joe Sixpack:

..two of the top foreign-policy issues are protecting American jobs and fighting illegal immigration, something he takes far more seriously than the elites that claim to represent him". Immigration is a difficult topic, and may be a good example of what we need and what we want our radically out of sync. The US political elite is probably complacent about illegal migration because on the one hand the economy needs a steady flow of low price workers and there is a significant 'laxist' lobby based on that reality whilst others may hope to benefit from the way these migrants and their descendents may vote later.

Activist Monetary Policy in the Fed and the ECB

By Mark Thoma

Recent remarks by Jean-Claude Trichet, President of the European Central Bank (ECB) at the Federal Reserve Symposium in Jackson Hole, Wyoming discuss monetary policy generally and highlight important differences between the U.S. Federal Reserve Bank and the European Central Bank’s approaches to monetary policy.  I’d like to focus on the specific topic of the appropriate degree of activism by central banks, a place where the Fed and the ECB appear to differ. 

In a previous post, I noted one argument made by ECB president Trichet against an activist stance, difficulties in obtaining accurate data soon enough to make activist policy feasible.  This post continues the discussion on activism.

Does Consumption Change When Government Spending Changes?

Before starting, I would like to thank New Economist for the opportunity to guest blog here this week along with Edward Hugh, and I hope I can live up to this blog's excellent standards.  This first post is a bit lengthy - Mark Thoma

Given the size of the budget deficit in the U.S., understanding the consequences of deficits is a timely topic.  One area of uncertainty is how changes in government spending affect consumption.  Theoretically, there is a distinct difference regarding how a change in government spending, G, affects consumption, C, in real business cycle (RBC) models and in textbook IS/LM models.  In RBC models, an increase in G lowers the present discounted value of after tax income causing a negative wealth effect and a decline in consumption.  In the IS/LM model, an increase in G increases after tax income inducing an increase in consumption. 

The new NBER paper presented here shows that the New Keynesian (NK) model also has this feature with the appropriate modifications. Thus, the prediction depends upon the model used, RBC models predict an increase in G causes a decline in C and the NK (as modified in the paper) and IS/LM models predict the opposite.

What does the empirical evidence have to say on this question?  The paper discussed in this post reviews past empirical work and provides new empirical work of its own.  The paper comes to the conclusion that the evidence suggests that G and C are positively correlated, or at least not negatively correlated, contrary to the predictions of RBC models.