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Economics

This page will be for notes and links on economics.

  1. Hardness versus Importance in Economics. (Akerlof and Ellison)
  2. Harald Uhlig (2012) “Economics and Reality” Is the Tesla Stock Split Paradox Really Paradoxical?

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From the Gelman blog:

From Larry White, quoted by Don Boudreaux:

As late as the 1989 edition [of his textbook, Paul Samuelson] and coauthor William Nordhaus wrote: “The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive.”

Asher is right. Samuelson and Nordhaus were making a political statement, in an effort to sound sagely moderate between the extremes of marxism and capitalism, which was unscholarly, since the truth often *is* one extreme or the other. In everyday life, if half the newspapers says 2+2=4 and half say 2+2=5, most people think saying 2+2=4.5 is the praiseworthy, moderate, position. But their “thriving” statement, while conveying falsehood and blameworthy, has a correct interpretation too. The Soviet Union was much richer in 1989 than it was in 1919. It had industrialized. It had radios and TVs and airliners. It showed an important fact that economists should emphasize: no matter how bad your economic policies, it’s really hard to keep technical change and regular investment from making your country richer over time. You may only get half the growth of your neighbors, but it’s still growth.

That was actually the big point of Schumpeter, Samuelson’s advisor. In the long run, all that matters is growth, not year-to-year macro policy, and all that matters to growth is innovation, so fostering innovation (broadly construed to include opening up new restaurants, etc.) is all that really matters. And, we can add as an appendix, unless you’re the US, it’s not scientific and technical innovation that matters— you can import that from the US– it’s “soft” innovation (the new restaurant) and use of imported techniques (wireless telephones in Indian villages).

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Examining Extreme and Deep Poverty in the United States
Jamie Bryan Hall and Robert Rector

On January 24, 2018, Nobel Prize–winning economist Angus
Deaton published an op-ed in The New York Times entitled
“The U.S. Can No Longer Hide from Its Deep Poverty Problem.”
According to Deaton, 5.3 million Americans are living on less than
$4.00 per day and “are as destitute as the world’s poorest people.…
[Their] suffering, through material poverty and poor health, is as
bad [as] or worse than that of the people in Africa or in Asia.”

Deaton cannot be called an honest man. This goes beyond stupidity. It has to be deliberate lying. This is his area of expertise. He knows that you can’t use official statistics of earned income to measure consumption. He might just as well say that many millions of Americans are living on $0.00/day, because children don’t have any income. Children aren’t starving to death, even though their income level is extremely low. You have to look at spending, just as Deaton himself is doing when he talks about poor people in Africa and Asia who also have zero money income (many are outside the market economy) but don’t have zero food and shelter consumption.

Since 1980, the
Consumer Expenditure Survey (CEX) has reported
on the annual consumption expenditures of 222,170
households. Of these 222,170 cases, 175 reported
spending less than $4.00 per person per day. That is
one household in 1,270. Rather than 1.7 percent of the
population living in deep poverty, expenditure surveys show that the figure is only 0.08 percent.

Economist Bruce Meyer of the University of Chicago has shown that it is possible to use the CEX data
to construct a far more accurate measure of poverty.24 For example, the CEX has shown for decades
that the households in official poverty routinely
report spending roughly $2.40 for every dollar of
apparent income. For families in “extreme poverty,”
with a consistent income of $2.00 or less per person
per day, the expenditure-to-income ratio rises to
around $25.00 to $1.00.25

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