Thursday, May 26, 2011

For Discussion: The Great Recession on State and Local Tax Revenue


(Click on Image to Expand.)

Suppose you are MaxB, the stereotypical budget maximizing bureaucrat found in the public choice literature. Suppose further you are standing in 2003, with full knowledge of the upcoming bubble and bust (pick your own dates for these events), and you can pick between two hypothetical portfolios:
  • Portfolio A: Participate in the bubble, grow quickly for several years, then take a large hit.
  • Portfolio B: Do not participate in the bubble, stay the course, and have a relatively smooth growth transition through the bubble.
Which portfolio do you pick, as MaxB? Do you still have more revenue at the end of bubble in A than you have at B? Is it the volatility that is painful?

In the graph above (obviously I did not desesasonalize the data, deal with it x11 lovers), national totals seem to indicate that the trough of post-bubble total tax revenue is in the ballpark as 2002-2003 revenues. National aggregates cover-up the many individual state declines, and no government official is literally in the situation I describe above. Nevertheless I think the question is worth thinking about anyway: For MaxB, do the budget benefits of the bubble exceed the budget costs of the great recession?

Tuesday, May 24, 2011

Blockquoting X

X = Hal Varian:
But where to get ideas, that's the question. Most graduate students are convinced that the way you get ideas is to read journal articles. But in my experience journals really aren't a very good source of original ideas. You can get lots of things from journal articles--technique, insight, even truth. But most of the time you will only get someone else's ideas. True, they may leave a few loose ends lying around that you can pick up on, but the reason they are loose is probably that the author thought about them a while and couldn't figure out what to do with them or decided they were too tedious to bother with--which means that it is likely that you will find yourself in the same situation.

My suggestion is rather different: I think that you should look for your ideas outside the academic journals--in newspapers, in magazines, in conversations, and in TV and radio programs. When you read the newspaper, look for the articles about economics...and then look at the ones that aren't about economics, because lots of the time they end up being about economics too. Magazines are usually better than newspapers because they go into issues in more depth. On the other hand, a shallower analysis may be more stimulating: there's nothing like a fallacious argument to stimulate research.

Wednesday, May 11, 2011

Blockquoting X

X = John Taylor, as quoted in this WSJ article on Zimbabwe's now-defunct 100-trillion-dollar note:
No self-respecting monetary economist goes around without a 100-trillion-dollar note.
Being a trillionaire ain't what it used to be.

[HT: Dan Smith]

Sunday, May 08, 2011

Blockquoting X

X = J. Bradford Delong:
The fact is that we need fewer efficient-markets theorists and more people who work on microstructure, limits to arbitrage, and cognitive biases. We need fewer equilibrium business-cycle theorists and more old-fashioned Keynesians and monetarists. We need more monetary historians and historians of economic thought and fewer model-builders. We need more Eichengreens, Shillers, Akerlofs, Reinharts, and Rogoffs – not to mention a Kindleberger, Minsky, or Bagehot.
I am pleasantly surprised that he feels this way.

Wednesday, May 04, 2011

What I've Been Writing

In my latest working paper, I consider the debate between Friedman and Hayek in the 1970s and 1980s following the publication of Hayek's Denationalisation of Money. Here's the abstract:
Hayek (1976, 1978, 1984, 1990) is often credited with the resurgence of interest in alternative monetary systems. His own proposal, however, received sharp criticism from Friedman (1984), Fischer (1986), and others at the outset and never gained much support among academic economists or the wider population. According to Friedman, Hayek erred in believing that the mere admission of competing private currencies will spontaneously generate a more stable monetary system. In Friedman’s view, network effects, to use the modern term, discourage an alternative system from emerging in general and prevent Hayek’s system from functioning as desired in particular. I offer new evidence provided by recent events in Somalia as support for Friedman’s initial doubts.
As some of you will no doubt recognize, this builds on my earlier work with Larry White.

Monday, May 02, 2011

Did Intrade Forsee Bin Laden's Capture?

Intrade might have foreseen the capture of Saddam Hussein, but it doesn't look like that was the case this time:

And the prediction market doesn't appear to be waiting around for a long-form death certificate to close the deal.