Correlation vs. Causation

Where have all the oil shocks gone?

(The following is borrowed from Gregory Mankiw, former economic adviser to President Bush)

Oil prices are near record highs, which raises a fascinating question. In recent years, the U.S. and world economies have typically shrugged off oil price increases. By contrast, oil price increases are a major part of the conventional story of the economic turmoil of the 1970s. Why the difference?

We economists do not have a complete answer, but we have some clues. One important clue is on graph above.

The economy is far more energy-efficient today than it was in the past, in part because economic activity is based more on services and less on manufacturing. As a result, energy prices matter less today.

In their research on the topic, Blanchard and Gali also give credit to more flexible labor markets, better monetary policy, and a bit of luck.

Another hypothesis: The macroeconomic effect of high energy prices may depend on whether the high prices are the result of reduced supply or increased demand. Perhaps in the 1970s high oil prices were largely the result of supply restrictions, whereas in recent years high oil prices are driven more by increased demand from a booming world economy.
One final conjecture: Maybe the recent increase in oil prices has been less sudden, making it easier for other prices and thus the economy to adjust. In particular, it may not have affected the skewness in the distribution of relative-price changes in the same way as previous oil shocks did.

We have no shortage of theories. The definitive study on the macroeconomic effect of oil prices is still waiting to be written.

Are you right brained or left brained?

Don't think this relates directly to any economic topic but it is a fun test. If you remember the 70s (like me, and probably your parents) you may be able to hear Elton John's "Tiny Dancer" as you watch her spin. Very annoying.

How to get into an Ivy League School.

Here is an article that might help you get into the school of your choice. And I won't charge you a penny for the recommendation.

Which candidate best fits your views?

This little test claims to rank candidates based on your preferences. I can't vouch for its accuracy but it is fun to see the results.

The blue eyes have it.

Did you know that every president since Nixon has had blue eyes? That's every president since the invention of color television. Read this article and tell me what you think.

The photo above is NOT implying anything about any presidents past, present, or future (don't want to lose my job). Just wanted you to consider that Hitler did have blue eyes. Maybe it's relevant, maybe not.

Who Should Pay for the War?

This is my favorite columnist. He has also written several great books. He points out stupidity wherever it might lurk (whether Democrat or Republican). Check out his latest column.

Charge It to My Kids, by Thomas Friedman, Commentary, NY Times

Clinton: $5,000 for Every U.S. Baby!

Democratic presidential candidate Hillary Rodham Clinton said Friday (Sept. 28) that every child born in the United States should get a $5,000 "baby bond" from the government to help pay for future costs of college or buying a home.
Clinton, her party's front-runner in the 2008 race, made the suggestion during a forum hosted by the Congressional Black Caucus.
"I like the idea of giving every baby born in America a $5,000 account that will grow over time, so that when that young person turns 18 if they have finished high school they will be able to access it to go to college or maybe they will be able to make that downpayment on their first home," she said.
The New York senator did not offer any estimate of the total cost of such a program or how she would pay for it. Approximately 4 million babies are born each year in the United States.

So how would we pay for this? Are Americans this gullible?

You guys think I'm weird but I'm just trying to stamp out cognitive dissonance.

Scott Adams, creator of the great comic strip Dilbert, explains how economics changes your brain.

If you could name your price what would you pay?

The band Radiohead is trying a new business model. Download their new album and pay whatever you think it's worth.

[S]inger Thom Yorke told TIME, “I like the people at our record company, but the time is at hand when you have to ask why anyone needs one. And, yes, it probably would give us some perverse pleasure to say ‘F___ you’ to this decaying business model.”

Will this be profitable? How much would you pay for a song or album if you got to name the price? Would you pay the going rate, be generous or a free rider?