Wednesday, February 10, 2010
Keeping up with the Joneses
Recently I've been looking at various government websites targetted to kids. The Energy Information Kids is highly informative and well made, but the Federal Reserve System Kids page is horribly lacking. I will be writing to Ben about this unfortunate situation. Stay tuned for my progress reports.
Thursday, February 4, 2010
February is Edgeworth Month
Someone gave my an American Economic Association 2010 Calendar that highlights a different economist every month, sort of like a cat calendar but without the cuteness and warmth. February is Francis Edgeworth Month.
Frank is famous for giving us the Edgeworth Box, one of my favorite economics gizmos. Aside from having fistfuls of innuendos shoved into every crack, the Edgeworth Box combines mathematical economics with the more talking-points economics (my personal favorite). An Edgeworth Box is great for demonstrating the first two fundamental theorems of welfare economics. The first theorem tells us that if certain conditions are met, self-serving agents will naturally come to a socially optimal outcome. The second tells us that by manipulating initial endowments, any socially optimal point is accessible.
What does this mean for the pundit economist? It means we should emphasize trade, trade, trade. Governments should establish property rights and allow individuals to exchange goods, and all parties will be better off. This sort of mutual benefaction is a good counter against those who are cautious about capitalism and see it as a zero-sum game.
There's some calculus in the Edgeworth Box which will not doubt please the more mathematically inclined econ student, but most of its concepts can also be demonstrated visually with some curves and lines. Overall, it's one of the sexiest things I've ever seen in my life.
Frank is famous for giving us the Edgeworth Box, one of my favorite economics gizmos. Aside from having fistfuls of innuendos shoved into every crack, the Edgeworth Box combines mathematical economics with the more talking-points economics (my personal favorite). An Edgeworth Box is great for demonstrating the first two fundamental theorems of welfare economics. The first theorem tells us that if certain conditions are met, self-serving agents will naturally come to a socially optimal outcome. The second tells us that by manipulating initial endowments, any socially optimal point is accessible.
What does this mean for the pundit economist? It means we should emphasize trade, trade, trade. Governments should establish property rights and allow individuals to exchange goods, and all parties will be better off. This sort of mutual benefaction is a good counter against those who are cautious about capitalism and see it as a zero-sum game.
There's some calculus in the Edgeworth Box which will not doubt please the more mathematically inclined econ student, but most of its concepts can also be demonstrated visually with some curves and lines. Overall, it's one of the sexiest things I've ever seen in my life.
Saturday, January 30, 2010
Cynicism and the Science of Poverty Reduction
I love microfinance because it helps people by assuming the worst in them.
Elizabeth Schroeder came by Oregon State yesterday to give a lecture on the efficacy of microfinance. For those who don't know, microfinance is a lending system used in developing countries where normal credit markets don't exist. Lending is a pretty hard thing to do in the long run. Imagine people came up to you and asked to borrow some money with interest. Would you do it? You might if they appeared wealthy, gave collateral, and had good references. Those don't necessarily exist in the developing world. Banks understand the same thing.
This can be damning for poor communities. Starting even a simple business can have substantial start-up costs, which become problematic barriers without lending. Wealthy nations also suffer. Our simplest economic models tell us that you can get a lot of bang from your first bucks invested than from your billionth, and yet capital is not flowing into these economies of great potential. The uncertainty is just too great for traditional financial systems, even though there is money to be made in the developing world.
Enter microfinance. In this system, you, the lender, still don't know much about your clients in the developing world, but those potential borrowers probably know a bit about each other. They have friends just like everyone else, and they gossip and pry and quietly judge one another just like you. It's simple, then. Offer individual loans, but only to people who have formed a group of five other interested borrowers. If anyone in the group defaults, you cut credit off to everyone in the group. What happens is that people will only invite into a group friends who they trust not to default. As an added bonus, you might even get a little social pressure on deadbeat debtors to make their payments, and you don't spend a dime on collection agencies.
There's money to be made in these lending groups. The average interest rate is around 20%, while the repayment rate is an impressive 90%. It doesn't take a finance major to see the profit in microfinance. Oh yeah, you're also helping the poor of the world (as Ms. Schroeder demonstrated in her paper), but it's an example of cold economics turning the gears and not high-minded idealism. Bankers want to make money, struggling entrepreneurs will self-select, the incentives are there, and everyone is made better off.
Elizabeth Schroeder came by Oregon State yesterday to give a lecture on the efficacy of microfinance. For those who don't know, microfinance is a lending system used in developing countries where normal credit markets don't exist. Lending is a pretty hard thing to do in the long run. Imagine people came up to you and asked to borrow some money with interest. Would you do it? You might if they appeared wealthy, gave collateral, and had good references. Those don't necessarily exist in the developing world. Banks understand the same thing.
This can be damning for poor communities. Starting even a simple business can have substantial start-up costs, which become problematic barriers without lending. Wealthy nations also suffer. Our simplest economic models tell us that you can get a lot of bang from your first bucks invested than from your billionth, and yet capital is not flowing into these economies of great potential. The uncertainty is just too great for traditional financial systems, even though there is money to be made in the developing world.
Enter microfinance. In this system, you, the lender, still don't know much about your clients in the developing world, but those potential borrowers probably know a bit about each other. They have friends just like everyone else, and they gossip and pry and quietly judge one another just like you. It's simple, then. Offer individual loans, but only to people who have formed a group of five other interested borrowers. If anyone in the group defaults, you cut credit off to everyone in the group. What happens is that people will only invite into a group friends who they trust not to default. As an added bonus, you might even get a little social pressure on deadbeat debtors to make their payments, and you don't spend a dime on collection agencies.
There's money to be made in these lending groups. The average interest rate is around 20%, while the repayment rate is an impressive 90%. It doesn't take a finance major to see the profit in microfinance. Oh yeah, you're also helping the poor of the world (as Ms. Schroeder demonstrated in her paper), but it's an example of cold economics turning the gears and not high-minded idealism. Bankers want to make money, struggling entrepreneurs will self-select, the incentives are there, and everyone is made better off.
Monday, October 13, 2008
Econ Club Fall 2008
The first (organizational) meeting of the Econ Club needs to get set. If you were a member of the club last year and are interested in continuing and perhaps willing to help run it, please let me know.
Patrick Emerson
P.S. Disregard the calendar below, it is doing its own thing...
Patrick Emerson
P.S. Disregard the calendar below, it is doing its own thing...
Friday, May 2, 2008
Wednesday, April 30, 2008
Why Do We Keep Seeing This?
Econ101 folks...
http://krugman.blogs.nytimes.com/2008/04/29/gas-tax-follies/
http://krugman.blogs.nytimes.com/2008/04/29/gas-tax-follies/
Friday, April 4, 2008
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