economics

“Spain is not Greece.” Elena Salgado, Spanish Finance minister, February, 2010.

“Portugal is not Greece.” The Economist, April 2010.

“Greece is not Ireland.” George Papaconstantinou, Greek Finance minister, November, 2010.

“Spain is neither Ireland nor Portugal.” Elena Salgado, Spanish Finance minister, November 2010.

“Ireland is not in ‘Greek Territory.’”Irish Finance Minister Brian Lenihan. November 2010.

“Neither Spain nor Portugal is Ireland.” Angel Gurria, Secretary-general OECD, November, 2010.

“Italy is not Spain” – Ed Parker, Fitch MD, 12 June 2012

“Spain is not Uganda” Spanish PM Rajoy. June, 2012

“Uganda does not want to be Spain” (Ugandan foreign minister) June 13th 2012

source here. hat tip @justinwolfers

Hit songs, books, and movies are many times more successful than average, suggesting that ‘‘the best’’ alternatives are qualitatively different from ‘‘the rest’’; yet experts routinely fail to predict which products will succeed. We investigated this paradox experimentally, by creating an artificial ‘‘music market’’ in which 14,341 participants downloaded previously unknown songs either with or without knowledge of previous participants’ choices. Increasing the strength of social influence increased both inequality and unpredictability of success. Success was also only partly determined by quality: The best songs rarely did poorly, and the worst rarely did well, but any other result was possible.

More here (via Barker).

A few quick thoughts:

• A quick proxy for status is how many people talk about you when you’re not there. Record labels (and movie studios) create this real value.
• There can be only one #1 song at any given moment so, all things equal, the biggest baddest promotion machine gets the slot. This is an arms race. Also, timing your release to avoid the Lady Gaga/Pitbull/whatever Gorillas matters.
• One can imagine an equilibrium with lower overall promotional costs and similar music quality. It’s called the no-trademark equilibrium. There is no incentive problem in high-status businesses so higher returns just flow back into marketing budgets. And the arms race heats up.
• So killing music trademarks will hobble marketing budgets. What effect does this have on eyeball businesses like the Internet? Might trademarks be key to the bubble so many feel but cannot prick? A transfer of measured GDP to more ‘real’ sectors would look pretty awesome to rocking chair economists.

Made its customers rich:

The Internet solved our problem, but in an unexpected way. In 1999, I had made a large conference table for a Philadelphia client. We put a picture of it on our Web site. People started to call about the table in 2003. They told me that they found my site using something called Google. In 2002, zero percent of my sales were driven by Web searches. By 2004, it was 90 percent, and we passed $1 million in annual revenue for the first time. We canceled our print ads and used the money to buy Web searches aimed at dining furniture and conference tables. Most of the callers wanted conference tables, so we turned our attention to the business-to-business market.

JG: Chairman Bernanke would deny that political pressure influences his vote, and he even went out of his way to make a public appearance in Texas after Rick Perry made his threat. But FOMC members all read the papers. They see the virulent opposition to their policies on the right and the silence on the left. (Paul Krugman is a big exception, but he is not a politician.)

via Yglesias more here.

Forget the median economist theory of the fed. Its power is granted by congress, a club for politicians, not economists.  And so it makes sense to avoid the ugly mess of legislating change by stocking the fed board (fedborg) with people who are sensitive to political pressure:

They want to avoid any Congressional action that would reduce their independence in the future, in part because they think this might lead to even worse economic outcomes than we are currently experiencing.

And this is also relevant:

JG: I think the average economist outside the Fed thinks the Fed has less ammo than the average economist inside the Fed.

Addendum: here Krugman on on the fedborg idea and a summary here:

In a lengthy column to be published in this week’s New York Times Magazine, Paul Krugman compares the Federal Reserve to a Borg—a race of beings from Star Trek that act based on the wishes of a hive mind, and present major threats to the Starfleet and the Federation.

Krugman argues that Fed Chairman Ben Bernanke has succumbed to this Borg mentality, subduing the beliefs he espoused during his career as an academic.

Krugman with an outstanding summary of the Euro history (this is why you never stop reading Krugman, regardless of how off-putting the tiresome political whining may be):

I’d put it this way: it so happened that the euro came into existence at a time when the German economy was in the doldrums. Then the euro made investors believe that southern Europe was safe, causing a huge fall in interest rates there:

This in turn led to vast inflows of capital; the flip side of these inflows was large trade deficits, and large counterpart German surpluses, which was just what the Germans needed. Everyone was happy! For a few years.

Hard to make it more succinct than that. If the Euro was born in another other era maybe it would never have worked in the first place!

I once watched John Paulson pretend he knew why the Gold price was going up. Now consider this example of the conventional wisdom:

Gold is at highs – also thanks to Fed activity. This basically leaves foreign exchange – in other words, the Fed would print dollars and buy foreign currencies, driving up the value of foreign currencies and down the value of the dollar.

Yglesias thinks the Fed should do this to stimulate the economy. I think so too, as it would increase the value of my gold holdings a lot.

The price of gold has nothing to do with inflation expectations in this environment. I tried to put together a TIPS spread vs Gold price graph at FRED but it doesn’t look like they have one.

Consider this idea for the price of gold: it goes up when the market realizes the fed’s lost its way. Can mean deflation or inflation.

High-frequency data on consumer confidence from the research company Gallup, based on surveys of 500 Americans daily, provide a good picture of the debt-ceiling debate’s impact (see chart). Confidence began falling right around May 11, when Boehner first announced he would not support increasing the debt limit. It went into freefall as the political stalemate worsened through July. Over the entire episode, confidence declined more than it did following the collapse of Lehman Brothers Holdings Inc. in 2008. After July 31, when the deal to break the impasse was announced, consumer confidence stabilized and began a long, slow climb that brought it back to its starting point almost a year later. (Disclosure: We have a consulting relationship with Gallup.)

That’s from a great article by Betsey Stevenson and Justin Wolfers (whose twitter feed I really enjoy: @justinwolfers) on how the debt ceiling wrangle damaged the economy.

And there are other data points that may be more credible even if they give less clean of a signal. Let’s put on our Scott Sumner hat and ask what he’d have to say about all this.

I predict Scott Sumner will apply his model for NGDP expectations and post about these graphs from that summer:

Falling TIPS spread, strengthening dollar, falling stock market? That’s a nominal shock, folks.

And furthermore I predict Sumner is going to finish his post by pointing out that the Fed did nothing, even though it could have offset this effect with a stroke of its pen (ie press release with some mega-charged loose money /pro-NGDP rhetoric).