There’s been an interesting discussion on some economics blogs about the state of economics knowledge. It’s part of a larger and perennial discussion/debate about what we should research and teach.

Despairing for their professions:

Brad DeLong reacts to an answer by Larry Summers about which economists are relevant:

Asked to name where to turn to understand what was going on in 2008, Summers cited three dead men, a book written 33 years ago, and another written the century before last.

Paul Krugman has been despairing for a while:

[W]e’re living in a Dark Age of macroeconomics. Remember, what defined the Dark Ages wasn’t the fact that they were primitive — the Bronze Age was primitive, too. What made the Dark Ages dark was the fact that so much knowledge had been lost, that so much known to the Greeks and Romans had been forgotten by the barbarian kingdoms that followed.

In New Zealand, the NZAE may be able to help. We have members from throughout the profession, both producers and consumers of economics knowledge. By talking with each other, we might be able to figure out what the relevant knowledge is and how to produce and transmit it.

But that raises some questions. Is there a market failure in the production of knowledge? That is, are economists really not producing the kind and amount of knowledge that is being demanded by knowledge consumers? Furthermore, would co-ordination help the problem?

The alternative is that the right amounts and kinds of information are being produced to satisfy those with an effective demand for it.

The Government’s new energy policy was released, apparently by accident. Groups and businesses involved in the energy sector have already started commenting on it.

As a general picture of New Zealand’s energy future, the summary on pages 6 and 7 is pretty good. There is a solid economic framework underneath. For example, it includes both supply and demand factors. On the supply side, nearly every source of energy gets a mention (nuclear energy is absent). On the demand side, the policy mentions new technologies to help consumers manage their energy costs. The idea of assessing marginal impacts almost makes it, such as in this passage: ‘Oil is used efficiently and where it is most highly valued.’ Technological growth is given its due, too, with a nod to ‘continuous improvements in energy efficiency’.

Reading just these two pages, you get a sense that there is a lot to think about. Our modern economy is based on cheap energy. An illuminating example is Nordhaus’s research on the historical price of lighting. The amount of lighting one could obtain with 5 hours of labour in 1800, had become nearly too cheap to measure in 1992. If the energy era truly is ending, what does that mean for our economy?

On the other hand, the report also shies away from fully facing up to the potential conflicts. Early the report, we are told that ‘the government is interested in pursuing energy initiatives that have both an economic benefit and a positive overall effect on the environment’. This is a clear statement of non-satiation: we would like to have more of everything. But economics tells us that we also need to consider our budget constraint. It’s when we have to give up some of one good to have more of another that things get interesting.

Putting together my first post made me think about the economics of blogging. Blogging is a tournament game: low barriers to entry, with a very few earning fame and fortune. In that respect, it is similar to dealing drugs (see Freakonomics).

For most bloggers, the return is low. If someone is blogging about economics, and doing a credible job of it, s/he presumably has marketable skills. Banks, universities, ministries, think-tanks — there’s a long list of potential employers. Why bother producing a blog?

Three reasons came to mind:

  • Weak altruism. Working on the NZAE Council, I see how much other people have contributed over the years. Now, through blogging, I can help improve the visibility and relevance of the Association. If economics looks relevant, then I look relevant, too.
  • Consumption good. Although I’m producing something, the real reason for writing a blog is the enjoyment of production. That makes blogging like playing music, knitting, and baking biscuits. Sure, we can argue about the relative quality of home-made versus store-bought, but in the end it’s about the pleasure of producing it yourself. It just so happens that I enjoy producing economic arguments.
  • Signalling. Well-known economics blogs tend to be side-lines. Why are otherwise successful people blogging, and why aren’t more economics bloggers famous in their own right? This looks like signalling in two parts. First, I’m not going to trust Billy Bob’s Forum of Economics and Used Hardware (no link). The fact that someone has a day job (in economics) signals trustworthiness. Secondly, getting involved with blogging signals with-it-ness. I can grok the new media, man. That makes me more in demand for my day job.

So blogging is like the rest of the economy: I am sending signals in order to improve my individual outcome, while contributing to my own tribe (but not too much) and taking pleasure from it.

Here’s to a new and strong signal from NZAE. We’ll enjoy the DIY, and we’ll try to keep the noise down.

There has been a lot of attention given to nuclear power given Fukushima. I don’t know what the real story is, but there are alternative viewpoints to consider. For illustration, here are a few links suggesting difficulties in measurement and comparison of options, and the possible sensationalisation of the current crisis.

1) Several articles have been critical of the reporting. There is one at:

http://www.nzherald.co.nz/world/news/article.cfm?c_id=2&objectid=10713939

2) Some have been concerned at misinformation. For some details on the nuclear issue, see this by Josef Oehman of MIT:

http://www.businessinsider.com/japan-reactors-pose-no-risk-2011-3

3) Here is a piece from the (UK) Guardian by someone saying how the incident has changed his view of nuclear power: http://www.monbiot.com/2011/03/21/going-critical/

4) This is an article from Scientific American mentioned in (3) which compares radiation from nuclear reactors and from coal-fired power plants:

http://www.scientificamerican.com/article.cfm?id=coal-ash-is-more-radioactive-than-nuclear-waste

The title as given in the URL is misleading. The key point is made in the sentence, “In fact, the fly ash emitted by a power plant—a by-product from burning coal for electricity—carries into the surrounding environment 100 times more radiation than a nuclear power plant producing the same amount of energy.”

Dr James Lennox of Landcare Research will present on his development of a global multiregional dynamic general equilibrium model to the CGE group in Wellington, 26 April. James’s model is to be used within a framework for the integrated assessment of global climate change and policies. An abstract for the presentation will available closer to the date.

Contact Anita King if you wish to become part of the Computable General Equilibrium (CGE) special interest group.

Dr Frédéric Boissay of the European Central Bank will discuss the implications of financial integration and global imbalances in terms of output, welfare, wealth distribution, and policy interventions at the University of Auckland this afternoon. His modeling points to, on the one hand, financial integration permits a more efficient allocation of savings worldwide in normal times. On the other hand, however, it also implies a current account deficit for the developed country. The current account deficit makes financial crises more likely when it exceeds the liquidity absorption capacity of the developed country.

See Calendar of Events for other economic presentations in NZ.

Nationwide spending through the Paymark electronic payments network dropped 6% from year-ago levels on Tuesday 22 February, the day of the second major Christchurch earthquake, mostly due to a 33% spending drop in the Canterbury region. Subsequent to this there has been only partial recovery in Canterbury and some shift in spending to South Canterbury, but spending beyond these two regions has resumed at the faster-than-of-late 6% p.a. witnessed earlier in February.

The intention of this blog is to highlight economists’ work and provide material to support education and general understanding, especially as it relates to economics in New Zealand. It is not a forum for advocacy (other than better use of economics). Posts are categorised using the JEL Classification System and tagged as considered appropriate. Authors are generally Councillors of the NZAE. Anyone can provide comments. Any views expressed are not necessarily those of the NZAE.

We all like success. But do we really understand why some succeed and others do not? Outliers by Malcolm Gladwell is a superb book offering some insights. Just as importantly, it is readable. Gladwell is a story-teller. He has purposely pitched the book at the ‘popular audience’. He is doing something right judging by the book topping overseas best-seller lists recently.

Not surprisingly success is a combination of ability, effort and timing. It is the last two factors on which Gladwell focuses, suggesting for example that 10,000 hours of ‘practice’ was a huge part of the success of Bill Gates and the Beatles, as well as fortunate timing. Another interesting statistic is the prevalence of March quarter birthdays amongst top Canadian ice hockey players, suggestive that a 1 January cut-off for children’s sports teams has biased the chances of sporting success later in life.

The New Zealand Listener recently ran an extensive review of these themes, including a check on the birthdates of the All Blacks. And, yes, the same bias appears to be present.

Gladwell also explores the role of communication. Communication matters, especially in the cockpit of a commercial plane. You will be pleased to know that New Zealand pilots score well in terms of a “power distance index”. In plain terms, we are willing to speak up, even if the message will upset our supposed superiors. But don’t get too complacent: we don’t score so well when it comes to numbers – for a very logical reason, it turns out.

The stories and insights just keep on flowing, building a fascinating picture of success as a legacy. The popular myth is that of overnight success but more likely success builds gradually. So you are right, in part: it was your parents’ fault all along. But think again. Buried in your past are the seeds of your own success, be it a work ethic or an attitude or a stubbornness or merely some chance acquaintance.

The major criticism of the book appears to be ‘so what?’ The stories are entertaining but the key message is hardly new. That may be the case. But that does not disempower the book. To me, reconsidering what determines my likely success, and considering under what conditions I might succeed, is well worth the time.

You will probably enjoy this book if you liked: Black Swan, another recent top-seller jammed with wonderful stories by Nassim Taleb.

Hello from Wellington