Saturday, December 30, 2006

The minimum wage increases next week

The new year brings the first increase in the minimum wage in Ohio in a decade. The minimum increases from $5.15/hour to $6.85/hour. The effects of the minimum wage on employment is controversial and subtle. The increase changes relative wages and this relative change is a concern to David Tramontana, chief executive of Black Stone Health Care, a home health care provider:
"Would you be trekking around Ohio in December, spending five hours a week in your car, battling the elements to go to senior citizens' homes to cook their meals, give them baths, when for the same pay, you could work in a restaurant
without those challenges?"

In Arizona some people worry about the effect of their minimum wage hike on workers in disabled job centers. Randy Gray worries

“I have been working around the clock with high-paying labor attorneys who are saying that unequivocally, the net effect of this is we have to cease and desist all center-based workshop operations effective Jan.

The devil is often in the details.

Friday, December 29, 2006

More on Ford, or "Price Stability is Job 1"

In the econo-blogo-sphere, discussion of President Ford's tenure has focused on Federal Reserve Chairman Arthur Burns. Macroblog attempts a defense of Burns; who Econbrowser finds indefensible.

Burns' reputation will not be helped by new evidence from the Nixon tapes indicating he may have had a political motive for an overly-expansionary monetary policy -

October 10, 1971, Nixon to Burns: “I don’t want to go out of town fast…. This will be the last conservative administration in Washington.”

December 10, 1971, Burns to Nixon: “I wanted you to know that we lowered the discount rate… got it down to 4.5%... [I] put them [FOMC] on notice through this action that I want more aggressive steps taken by that committee on next Tuesday”
Nixon to Burns: “Great. Great, you can lead ‘em. You can lead ‘em. You always have, now. Just kick ‘em in the rump a little.”

Source: Burton A. Abrams: “How Richard Nixon Pressured Arthur Burns: Evidence from the Nixon Tapes” Journal of Economic Perspectives, Fall 2006

Central bank independence, indeed!

Thursday, December 28, 2006


Although most coverage of President Ford's legacy has focused on the political and foreign policy turmoil of the mid-1970's, students of economics will associate his tenure with "stagflation" (simultaneous high inflation and unemployment) and the "misery index" (the sum of the inflation and unemployment rates). The Washington Post gives Ford credit for making the best of a difficult situation.

Wednesday, December 20, 2006

The Money Trust

Washington Post columnist Steven Pearlstein suggests that Wall Street's bonuses ($24 billion this year) result from something other than a high marginal productivity of labor.

Pearlstein chatted with readers about his column.
Meanwhile, over at the NY Times, Henry Blodget argues that the folks at Goldman Sachs deserve every penny. [The very same Blodget was fined and banned from the securities industry for his behavior as a Merrill Lynch stock analyst during the internet bubble... He's made a comeback as a commentator, further evidence that F. Scott Fizgerald was completely wrong when he said "there are no second acts in American lives"]

Sunday, December 17, 2006

Discounting: Morally indefensible but mathematically indispensible?

When we make choices that have very long-term implications, how much weight goes on the welfare of future generations? Most economic models assume that we "discount" the future - a custom often dictated by mathematical necessity. In the NY Times, Hal Varian explains that discounting is at issue in some economists' critiques of a recent British government report on global warming.

Tuesday, December 12, 2006

Can Hank and Ben fix the world?

With the dollar sliding, and Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke on their way to China, more attention than usual is being paid to "global macroeconomic imbalances."

In the Washington Post, Sebastian Mallaby ponders whether world trade rules should limit the ability of countries to promote exports by keeping their currencies undervalued and Robert Samuelson looks at the unique role of the US dollar. The Economist argues that our fixation on China is misdirected.

A quick refresher on the relevant economics: A country's net exports are the difference between its national savings and investment - the large US trade deficit implies that national saving insufficient to finance domestic investment, while China and the oil exporters are saving more than they are investing domestically. Their "excess" saving flows to finance US investment. The surplus countries receive financial I.O.U.s (Treasury Bonds, Stocks, etc...) in return for the goods they send us.
If a government is intervening to keep its currency "undervalued" relative to its market equilibrium price there will be excess demand. The government sells its currency to meet the excess demand, thereby accumulating reserves (e.g. China is depressing the value of the Yuan by selling it cheaply for dollars, in doing so it is piling up a massive hoard of dollars). In the short run, a cheaper currency may increase exports by making them less expensive to foreigners.

Do demand curves slope up or do colleges price discriminate?

I opt for the latter conclusion, but this NY Times article at first suggests the former. (hat tip to Jared Barton)

Friday, December 01, 2006

What do economists believe?

Greg Mankiw reports on a recent survey of economists.

Friedman v. Keynes

Brad Delong compares and contrasts the views of Friedman and Keynes; and frames questions that still fire debate.