Rest of semester blogs suspended due to swine flu.

In order to prevent the spread of swine flu I am calling off the blogs for the remainder of the semester. I have heard you can get a virus on a computer and I prefer to practice safe computing. Actually there is no such thing as safe computing so we will have to abstain from computing.

Seriously, I have fallen way behind and I am pretty sure you guys are having trouble remembering to do this weekly. I will take the participation grades strictly from the current events for the rest of the year. Thanks for playing.

Dead on

An economic cartoon for Kingston.

Southpark's take on the bailout.

Drug Bracelet

So do you think this will work? \http://www.thesoundadviceproject.com/

Optimism!

Here (in red) are the growth forecasts used to put out the new Obama administration budget, followed by the consensus forecast of a panel of "Blue Chip" private forecasters (in blue, naturally).

2009: -1.2% -1.9%

2010: +3.2% +2.1%

2011: +4.0% +2.9%

2012: +4.6% +2.9%

2013: +4.2% +2.8%

Accumulating the difference, you find that Team Obama projects about 6 percent higher GDP in 2013 than do private forecasters. Remember that using the rule of 70 highlights the size of this gap in forecasts.

Girl Your Marginal Benefits Outweigh Your Marginal Costs

This guys speaks the language of.... economics, not love. Oh well.

http://www.purevolume.com/miketoomey

The danger of minimum payments

A nudge in the wrong direction


From The Economist print edition


Minimum-payment requirements may be counterproductive

EVEN the best-intentioned policies can fall prey to the quirks of human behaviour, as a new study of credit-card repayment finds. In order to stop borrowers from being socked by an accumulation of unpaid interest whenever they fail to pay their bill, there are laws requiring credit-card companies to specify a minimum payment in each statement. But these may do more harm than good, suggests Neil Stewart, a psychologist at Warwick University.

Mr Stewart was studying a phenomenon known as “anchoring”. Psychologists have found that being exposed to numbers, even irrelevant ones, can affect people’s decisions. For example, diners tend to spend more in a restaurant named “Café 97” than in one named “Café 17”. Since minimum payments on credit-card statements are usually small amounts, Mr Stewart wondered whether seeing an actual amount might make people pay less than they would otherwise have done. That is exactly what he found.

Mr Stewart presented 413 people with mock credit-card bills of £435.76 (about $650) that were identical—except that only half mentioned a minimum payment of £5.42. Participants were asked how much they would pay.

Among those inclined to pay the bill in full, the presence of the minimum payment hardly made any difference. However, those who wanted to pay just part of it handed over 43% less on average when presented with a minimum payment. In the real world, this would roughly double interest charges.

Economists will be interested in the results. Behavioural economists advocate “nudging” people in the right direction by subtly altering the choices that they are presented with. The insistence on minimum payments is a variation on this theme. Supposedly, those confronted by minimum-payment requirements should pay at least that much. In fact Mr Stewart’s work suggests that people who would have paid a lot, paid less. In economics, as in life, nudging needs to be done carefully.

Recession Can Change a Way of Life

By TYLER COWEN

AS job losses mount and bailout costs run into the trillions, the social costs of the economic downturn become clearer. The primary question, to be sure, is what can be done to shorten or alleviate these bad times. But there is also a broader set of questions about how this downturn is changing our lives, in ways beyond strict economics.

All recessions have cultural and social effects, but in major downturns the changes can be profound. The Great Depression, for example, may be regarded as a social and cultural era as well as an economic one. And the current crisis is also likely to enact changes in various areas, from our entertainment habits to our health.

First, consider entertainment. Many studies have shown that when a job is harder to find or less lucrative, people spend more time on self-improvement and relatively inexpensive amusements. During the Depression of the 1930s, that meant listening to the radio and playing parlor and board games, sometimes in lieu of a glamorous night on the town. These stay-at-home tendencies persisted through at least the 1950s.

In today’s recession, we can also expect to turn to less expensive activities — and maybe to keep those habits for years. They may take the form of greater interest in free content on the Internet and the simple pleasures of a daily walk, instead of expensive vacations and N.B.A. box seats.

In any recession, the poor suffer the most pain. But in cultural influence, it may well be the rich who lose the most in the current crisis. This downturn is bringing a larger-than-usual decline in consumption by the wealthy.

The shift has been documented by Jonathan A. Parker and Annette Vissing-Jorgenson, finance professors at Northwestern University, in their recent paper, “Who Bears Aggregate Fluctuations and How? Estimates and Implications for Consumption Inequality.” Of course, people who held much wealth in real estate or stocks have taken heavy losses. But most important, the paper says, the labor incomes of high earners have declined more than in past recessions, as seen in the financial sector.

Popular culture’s catering to the wealthy may also decline in this downturn. We can expect a shift away from the lionizing of fancy restaurants, for example, and toward more use of public libraries. Such changes tend to occur in downturns, but this time they may be especially pronounced.

Recessions and depressions, of course, are not good for mental health. But it is less widely known that in the United States and other affluent countries, physical health seems to improve, on average, during a downturn. Sure, it’s stressful to miss a paycheck, but eliminating the stresses of a job may have some beneficial effects. Perhaps more important, people may take fewer car trips, thus lowering the risk of accidents, and spend less on alcohol and tobacco. They also have more time for exercise and sleep, and tend to choose home cooking over fast food.

In a 2003 paper, “Healthy Living in Hard Times,” Christopher J. Ruhm, an economist at the University of North Carolina at Greensboro, found that the death rate falls as unemployment rises. In the United States, he found, a 1 percent increase in the unemployment rate, on average, decreases the death rate by 0.5 percent.

David Potts studied the social history of Australia in the 1930s in his 2006 book, “The Myth of the Great Depression.” Australia’s suicide rate spiked in 1930, but overall health improved and death rates declined; after 1930, suicide rates declined as well.

While he found in interviews that many people reminisced fondly about those depression years, we shouldn’t rush to conclude that depressions are happy times.

Many of their reports are likely illusory, as documented by the Harvard psychologist Daniel Gilbert in his best-selling book “Stumbling on Happiness.” According to Professor Gilbert, people often have rosy memories of very trying periods, which may include extreme poverty or fighting in a war.

In today’s context, we are also suffering fear and anxiety for the rather dubious consolation of having some interesting memories for the distant future.

But this downturn will likely mean a more prudent generation to come. That is implied by the work of two professors, Ulrike Malmendier of the University of California, Berkeley, and Stefan Nagel of the Stanford Business School, in a 2007 paper, “Depression Babies: Do Macroeconomic Experiences Affect Risk-Taking?”

A generation that grows up in a period of low stock returns is likely to take an unusually cautious approach to investing, even decades later, the paper found. Similarly, a generation that grows up with high inflation will be more cautious about buying bonds decades later.

IN other words, today’s teenagers stand less chance of making foolish decisions in the stock market down the road. They are likely to forgo some good business opportunities, but also to make fewer mistakes.

When all is said and done, something terrible has happened in the United States economy, and no one should wish for such an event. But a deeper look at the downturn, and the social changes it is bringing, shows a more complex picture.

In addition to trying to get out of the recession — our first priority — many of us will be making do with less and relying more on ourselves and our families. The social changes may well be the next big story of this recession.

Tyler Cowen is a professor of economics at George Mason University.

What we should do.

The following contains some very excellent ideas and points.

by Jeffrey A. Miron, senior lecturer in economics at Harvard University
CAMBRIDGE, Massachusetts (CNN) -- When libertarians question the merit of President Obama's stimulus package, a frequent rejoinder is, "Well, we have to do something." This is hardly a persuasive response. If the cure is worse than the disease, it is better to live with the disease.

In any case, libertarians do not argue for doing nothing; rather, they advocate eliminating or adjusting policies that are bad for the economy independent of the recession. Here is a stimulus package that libertarians can endorse:

Repeal the Corporate Income Tax: Repeal would spur investment, improve the transparency of corporate accounting, slash compliance costs, and avoid the distortions caused by the special-interest provisions in the tax code. Repeal can work fast, by raising companies' share prices, increasing cash flow, and allowing corporations to lessen their need for bank lending.

Thus repeal provides short-run stimulus and enhances long-run efficiency. Recent estimates suggest that tax cuts are at least as effective as spending increases in raising GDP. The adverse impact on the deficit is likely to be less than the $300-$350 billion in revenue the corporate tax takes in per year, since repeal spurs growth and therefore the revenue from other taxes.

Increase Carbon Taxes While Lowering Marginal Tax Rates: Reasonable people disagree about how much the U.S. should reduce its use of fossil fuels, but crowded highways, air pollution, and global warming all suggest that some reduction is desirable.

The effective way to accomplish this is higher gasoline or other carbon taxes, not the messy, complicated green spending in the Obama plan that will morph into pork in many cases. If higher carbon taxes are combined with lower marginal tax rates, the private sector faces better incentives on both counts. This approach avoids the higher deficits implied by Obama's green initiatives.

Moderate the Growth of Entitlements: The elephant in the room amidst the stimulus debate is the impending imbalance in Social Security and Medicare as the baby boom generation moves into retirement. Without reductions in benefits, taxes will have to increase substantially, generating a major drag on the U.S. economy.

A reasonable response is to raise the age of eligibility for Social Security and Medicare, consistent with the increases in life expectancy and health that have occurred in past decades.
This restructuring would reassure markets about the U.S.'s long-run fiscal balance. This means foreigners will continue to be willing to hold U.S. debt, so U.S. borrowing costs will remain moderate.

Eliminate Wasteful Spending: Most discussion of the stimulus focuses on areas where, according to proponents, government spending should be higher. Much current expenditure, however, is wasteful.

Examples include agricultural subsidies, bloated transportation projects like the Big Dig in Boston, misguided infrastructure projects like the New Orleans levees (why encourage people to live below sea level?), ineffective weapons systems, pork barrel spending, and subsidies for Amtrak and the Post Office (buses are more efficient than railways, and Fedex is more efficient than the Post Office).

Everyone knows the U.S.'s long-run deficit picture is dismal. We should address this by cutting inefficient spending now.

Withdraw from Iraq and Afghanistan: President Obama plans to withdraw U.S. forces from Iraq over the next eighteen months, while expanding U.S. involvement in Afghanistan. It is hard to see, however, that any good arises from dragging out our Iraq exit or from staying in Afghanistan. The government should move toward faster withdrawal, and from both countries. The U.S. can redeploy these troops where useful, or release the resources to civilian uses.

Limit Union Power: Later this year, Congress is likely to vote on the card check bill, a new law that facilitates unionization. The law eliminates the presumption of a secret ballot, which means union organizers can pressure employees into accepting representation.

Laws that protect unions are problematic. Unions raise wages above market levels, increasing unemployment. Thus the Obama administration can signal American business that it cares about efficiency, not just redistribution of wealth, by opposing the card check bill. Better yet, it can repeal the Davis-Bacon Act, which inflates labor costs in federal contracts.

Renew the U.S. Commitment to Free Trade: One crucial danger in the current environment is that the U.S. and other countries will embrace protectionist policies. The U.S. enacted prohibitive tariffs during the Great Depression, and many trading partners retaliated. World trade plummeted, contributing to the economic misery.

The Obama fiscal stimulus risks reviving this insanity, since both the House and Senate bills require that certain stimulus-funded projects use U.S. equipment and goods. The administration should oppose these provisions. More generally, President Obama and his economic advisors should state -- no, scream -- that America is unambiguously committed to free trade.

Expand Legal Immigration: Radical changes in immigration policy seem unlikely in the near future, but one specific change is compelling: an increased quota for H-1B visas, which go to workers with technical skills seeking employment in U.S. industry. The annual quota for such visas was 195,000 as recently as 2000, but it now stands at only 65,000.

A major increase in this quota would be a boon to American scientific and engineering productivity. More broadly, expanding immigration is the most effective method the U.S. has for aiding poor citizens of foreign countries and for influencing repressive governments.

Stop Bailing out Businesses that Took on Too Much Risk: Popular opinion blames deregulation and private sector greed for the financial meltdown, but the reality is more subtle.

Existing regulation was ineffective at preventing excessive risk-taking, and the private sector did its best to profit from the incentives that were in place. The extreme increase in risk-taking, however, would not have occurred absent policies that encouraged such risk (e.g., Fannie Mae or the Fed's reassurances about housing bubbles) or past bailouts that cushioned the losses from private risk-taking.

One crucial response to any crisis is learning to avoid the next one. The lesson this time is that rewarding risk generates more risk. The U.S. should therefore stop bailing out banks, automakers, homeowners, or anyone else.

The libertarian view, then, is that many desirable policy changes involve less government, not more. Even changes that are inconsistent with the Keynesian stimulus framework, such as reductions in military spending, make sense when the spending is wasteful.

It is tempting to believe that every problem has a solution, but the reality is not so nice. It is possible, even likely, that the best we can do is fix things we know how to fix, and then get out of the way. This may not ameliorate the current situation, but it avoids making things worse. In economics as in medicine -- first, do no harm.

The opinions expressed in this commentary are solely those of Jeffrey Miron.

Uncommon Economic Indicators

Common Economic Indicators include things like unemployment, GDP, and inflation. What are some uncommon economic indicators? Extra credit to the most creative one.

Here is one to get you stimulated (econ joke). The number of DVD rentals vs. Box office ticket sales. Is one going up and the other going down in a recession?

Six Word Motto for the United States.

Come up with a six word motto that reflects the current situation in the United States.
Examples:

They'll tax us till we die.
In God we trust, sort of.
Form a single line for bailout.
Get your bailout, everyone else is.

Extra credit goes to the one I pick as the cleverest.

The Fiendish Genius of Credit-Card Minimum Payments

By Freakonomics
New research finds that credit-card holders pay down their debts more slowly when their statements suggest a minimum monthly installment. The Economist reports on the study, by University of Warwick psychologist Dr. Neil Stewart:

Mr. Stewart presented 413 people with mock credit-card bills of £435.76 (about $650) that were identical — except that only half mentioned a minimum payment of £5.42. Participants were asked how much they would pay. Among those inclined to pay the bill in full, the presence of the minimum payment hardly made any difference. However, those who wanted to pay just part of it handed over 43 percent less on average when presented with a minimum payment. In the real world, this would roughly double interest charges.

It turns out that, for those inclined to pay their debt bit by bit, the monthly minimum acts as a mental anchor, exerting an enormous amount of influence on how quickly that debt gets paid. Stewart found that as suggested minimums drop, actual payments fall right along with them, even among people who pay above that bottom limit. So the minimum payment can be a helpful tool for card holders. It gives them a guide on how much money to pay to keep their debt from exploding under compound interest.

But it’s a much better deal for the companies that issue the cards. Say you’re a credit card company. You make money every time one of your card holders carries a balance at the end of the month, because you charge interest on that debt. A lot of interest. The longer your card holder carries debt, the more money you make. But if that debt tips out of control, and the card holder defaults, you lose everything.

So you want to find a middle road, a strategy that will keep your card holder’s debt manageable, but that will stretch out repayment as far into the future as possible, maximizing your profits.
Considering Stewart’s findings (paper available here), minimum monthly payments seem like the most surefire way down that middle path.

Inflation

We are about to study inflation. The Zimbabwe dollar has suffered about 230 million % inflation recently. This means it makes more sense to use it as toilet paper than to buy toilet paper. Nice thought.

Check out this website to convert dollars to foreign currency. Compare one U.S. dollar to a Zim.

http://www.oanda.com/convert/classic

I hate pennies.

Concord - Following the publication of an article in The Concord Journal on Concord Teacakes co-owner Judy Fersch, describing their penny boycott starting on Lincoln’s 200th birthday, many more West Concord merchants have followed suit. In each case, all transactions will be “rounded down” so that pennies will not be needed in change. Customers who insist on paying with pennies will be asked to throw them into a charity jar, though a charity which is willing to accept piles of pennies has yet to be located, a search which turns out to be harder than it would appear.

For actual payment, though, pennies will no longer be considered legal tender by most of these merchants.

“Being right across from the train station, we have long lines before trains leave and pennies make it worse,” said Fersch. “Further, there is a lot of lugging them from the bank, dropping them, not being able to reconcile register receipts and so on. Plus, mining zinc is an environmental nightmare, and it costs the government more to make pennies than they are worth. Finally, they have minted thousands for every man, woman and child. Where do they all go? If they were truly worth anything they wouldn’t end up in coffee cans, vacuum cleaners or sofas. It is simply a tax, which raises no revenue.”

Concord is also the birthplace of civil disobedience, where Henry David Thoreau went to jail for refusing to pay poll taxes to support the Mexican War.

“The jail is right down the street so we can be there in no time.” jokes Fersch.
Susan Cataldo, of Maximum Image by Sue, is equally adamant.
“When I run low on them [pennies], I usually have to reach in my wallet for a few,” she said. “Since I rarely have to deal with them, anyway, they are currently covered in the cash drawer with raffle tickets.”

Bill Griffin, Of Sally Anne’s Bakery in Concord Center, said he would like to have his register reprogrammed to round all prices including tax, to avoid handling pennies. “Until that happens, I still have to handle these worthless coins,” he said. “Let’s start a revolution right here in Concord to get rid of them altogether.”

Many of the participating stores say they already often round down in change because pennies are so annoying, and are happy to refuse to accept them in payment. “This doesn’t change what we do, no pun intended, except that refusing them means one less annoyance,” said Paula Silva of Millbrook Farms. But by drawing attention to it, Silva said, businesses are trying to make the point that pennies are a constant reminder of “government waste and it’s time to get rid of them. There are so many better things that the government can do with the money it spends on pennies, so many problems which need to be solved.” Regular West Concord shopper and Concord resident Christal Bjork reflects the sentiment of most other customers when she said, “They’re wasteful and it would be much easier not to have them. I think this is a great idea.”

This act of civil disobedience was conceived by http://www.thinkoob.com/, the Think-Out-of-the-Box Web site which bills itself as “America’s Marketplace of Ideas,” as a way to draw attention to its idea for phasing out pennies, as well as to its other ideas and to its million-dollar prize for the first idea originated on the ThinkOOB site to become law.

“We’ve figured out that all you need is a very simple executive order signed by the president saying ‘Establishments which agree to round down cash purchases may refuse to handle pennies,’” said Al Lewis. “This one-signature approach does not require an act of Congress, which the zinc mining companies have always blocked in the past. Obama said he is reviewing the cost-benefit of all government activities. This should be number one on his list.”
As part of the Lincoln’s birthday protest, Lewis intends to throw pennies on the ground in front of a policeman, and get cited for littering. “I want to prove that the government makes businesses accept litter as legal tender,” he said. “Then I want to go to jail and post my bond in pennies. The court will have to accept them and roll them all up. Our goal can be summed up in one Reaganesque sentence: Tear down this mint, Mr. Obama.”

America’s growing anti-penny sentiment was inspired by Professor Robert Whaples, chairman of the Economics Department at Wake Forest University. He has written in USA Today and elsewhere on the topic and is considered the father of the anti-penny movement to his admirers. To his enemies in the zinc lobby, however, he is considered the penny’s John Wilkes Booth. He said, “Even though a sparkling newly-minted penny brings back the innocence and joy of childhood, the penny is a tarnished relic. It wastes natural resources like zinc and energy, but worse — it wastes our precious time. Let’s honor Abraham Lincoln on his 200th birthday and stop linking his noble name to a useless, wasteful coin.”

Harvard economics professor Greg Mankiw has also blogged on the topic. He coined the term “Penny-Anti Protest” in support of the West Concord merchants. Among the other West Concord businesses to join the Penny-Anti Protest are Concord Outfitters, Reflections, Phillips Fine Paint, West Concord Supermarket, West Concord Liquors, Walden Italian Kitchen, Twin Seafood and The Barber Shop. Others are considering it. Early this week, the protest began to spread to Concord Center as well, with Anderson’s, Sally Anne’s, The Concord Flower Shop, and Country Kitchen also on board. “This is where Concord’s second revolution starts and ultimately the site should be commemorated with a statue of Lincoln, who himself would approve of our emancipation from the tyranny of the zinc lobby,” said Lewis. “Since this is Concord, I’d like to see an Emersonian quatrain inscribed on the statue as follows:
“To the rude lobbyists who corrupted our good/Congressmen to support their zinc/here the embattled merchants stood/and said: “We think your pennies stink.”

Supply and Demand Tutorials

As promised here are a couple of tutorial sites on supply and demand
http://cnx.org/content/m15778/latest/
http://www.econweb.com/MacroWelcome/sandd/notes.html

And here is a short tutorial video
http://www.teachonomics.com/2008/09/supply-demand-tutorial-video.html

And here is a video on supply and demand that I don't recommend. This guy is here for entertainment purposes only. He is wearing a ski cap and a lovely pritate shirt. And I think he may be under the influence.
http://www.5min.com/Video/Alex-on-Econ-1---Supply-and-Demand-37673062

Should you play the lottery? Before you answer read this http://www.nytimes.com/2007/03/11/weekinreview/11carey.html?_r=1&partner=permalink&exprod=permalink and check out this simulation http://tolearnflash.appspot.com/lotto/

And Fry It Up in a Pan

By Justin Wolfers
It’s social change alright: 26 percent of working wives out-earned their working husbands in 2006, up by nearly half from 20 years ago. Now that many more women are graduating college than men, higher-earning wives are going to become the new normal.

Also, notice that the line bumps upward around both the 1991 and 2001 recessions. A working spouse provides insurance against the vicissitudes of the business cycle; think about it — a pay cut is only half as painful when your spouse is working than when you are the only earner. For men who typically work in cyclically sensitive industries, this insurance pays dividends during a recession. Indeed, you can bet that we’ll see many more women bringing home the bacon this year.

Plenty more intriguing statistics, here.

Surgeon demands kidney or $1.5 million

NEW YORK: A New York surgeon who donated a kidney to his now estranged wife, is demanding the organ be returned.
Doctor Richard Batista decided to ask for his kidney back after nearly four years of divorce proceedings.
He says, if he can't get the organ back, he is willing to accept $1.5 million instead.

Batista claims his wife began having an affair two years after he gave her the kidney.
"I felt humiliated, betrayed, disrespected and disregarded as a person, a man,a husband as a father," said Batista.
An attorney for Batista's wife says, the facts of the now public case, have been misrepresented.
A judge is expected to hear the case within the next few days.

The guys in the photo would have loved to get 1.5 million for their kidneys - McKay

Is Government Spending Too Easy an Answer?

By N. GREGORY MANKIW
Published: January 10, 2009

WHEN the Obama administration finally unveils its proposal to get the economy on the road to recovery, the centerpiece is likely to be a huge increase in government spending. But there are ample reasons to doubt whether this is what the economy needs.

Arguably, the seeds of the spending proposal can be found in the classic textbook by Paul A. Samuelson, “Economics.” First published in 1948, the book and others like it dominated college courses in introductory economics for the next half-century. It is a fair bet that much of the Obama team started learning how the economy works through Mr. Samuelson’s eyes. Most notably, Lawrence H. Summers, the new head of the National Economic Council, is Mr. Samuelson’s nephew.

Written in the shadow of the Great Depression and World War II, Mr. Samuelson’s text brought the insights of John Maynard Keynes to the masses. A main focus was how to avoid, or at least mitigate, the recurring slumps in economic activity.

“When, and if, the next great depression comes along,” Mr. Samuelson wrote on the first page of the first edition, “any one of us may be completely unemployed — without income or prospects.” He added, “It is not too much to say that the widespread creation of dictatorships and the resulting World War II stemmed in no small measure from the world’s failure to meet this basic economic problem adequately.”

Economic downturns, Mr. Keynes and Mr. Samuelson taught us, occur when the aggregate demand for goods and services is insufficient. The solution, they said, was for the government to provide demand when the private sector would not. Recent calls for increased infrastructure spending fit well with this textbook theory.

But there is much to economics beyond what is taught in Econ 101. In several ways, these Keynesian prescriptions make avoiding depressions seem too easy. When debating increased spending to stimulate the economy, here are a few of the hard questions Congress should consider:

HOW MUCH BANG FOR EACH BUCK? Economics textbooks, including Mr. Samuelson’s and my own more recent contribution, teach that each dollar of government spending can increase the nation’s gross domestic product by more than a dollar. When higher government spending increases G.D.P., consumers respond to the extra income they earn by spending more themselves. Higher consumer spending expands aggregate demand further, raising the G.D.P. yet again. And so on. This positive feedback loop is called the multiplier effect.
In practice, however, the multiplier for government spending is not very large. The best evidence comes from a recent study by Valerie A. Ramey, an economist at the University of California, San Diego. Based on the United States’ historical record, Professor Ramey estimates that each dollar of government spending increases the G.D.P. by only 1.4 dollars. So, by doing the math, we find that when the G.D.P. expands, less than a third of the increase takes the form of private consumption and investment. Most is for what the government has ordered, which raises the next question.

WILL THE EXTRA SPENDING BE ON THINGS WE NEED? If you hire your neighbor for $100 to dig a hole in your backyard and then fill it up, and he hires you to do the same in his yard, the government statisticians report that things are improving. The economy has created two jobs, and the G.D.P. rises by $200. But it is unlikely that, having wasted all that time digging and filling, either of you is better off.

People don’t usually spend their money buying things they don’t want or need, so for private transactions, this kind of inefficient spending is not much of a problem. But the same cannot always be said of the government. If the stimulus package takes the form of bridges to nowhere, a result could be economic expansion as measured by standard statistics but little increase in economic well-being.

The way to avoid this problem is a rigorous cost-benefit analysis of each government project. Such analysis is hard to do quickly, however, especially when vast sums are at stake. But if it is not done quickly, the economic downturn may be over before the stimulus arrives.

HOW WILL IT ALL END? Over the last century, the largest increase in the size of the government occurred during the Great Depression and World War II. Even after these crises were over, they left a legacy of higher spending and taxes. To this day, we have yet to come to grips with how to pay for all that the government created during that era — a problem that will become acute as more baby boomers retire and start collecting the benefits promised.
Rahm Emanuel, the incoming White House chief of staff, has said, “You don’t ever want to let a crisis go to waste: it’s an opportunity to do important things that you would otherwise avoid.”
What he has in mind is not entirely clear. One possibility is that he wants to use a temporary crisis as a pretense for engineering a permanent increase in the size and scope of the government. Believers in limited government have reason to be wary.

MIGHT TAX CUTS BE MORE POTENT? Textbook Keynesian theory says that tax cuts are less potent than spending increases for stimulating an economy. When the government spends a dollar, the dollar is spent. When the government gives a household a dollar back in taxes, the dollar might be saved, which does not add to aggregate demand.

The evidence, however, is hard to square with the theory. A recent study by Christina D. Romer and David H. Romer, then economists at the University of California, Berkeley, finds that a dollar of tax cuts raises the G.D.P. by about $3. According to the Romers, the multiplier for tax cuts is more than twice what Professor Ramey finds for spending increases.

Why this is so remains a puzzle. One can easily conjecture about what the textbook theory leaves out, but it will take more research to sort things out. And whether these results based on historical data apply to our current extraordinary circumstances is open to debate.

Christina Romer, incidentally, has been chosen as the chairwoman of the Council of Economic Advisers in the new administration. Perhaps this fact helps explain why, according to recent reports, tax cuts will be a larger piece of the Obama recovery plan than was previously expected.
•
All these questions should give Congress pause as it considers whether to increase spending to stimulate the economy. But don’t expect such qualms to stop the juggernaut. The prevailing orthodoxy among the nation’s elite holds that increased government spending is the right medicine for what ails the economy.

Mr. Samuelson once said, “I don’t care who writes a nation’s laws or crafts its advanced treaties, if I can write its economics textbooks.”

The coming stimulus bill, warts and all, will demonstrate brilliantly what he had in mind.

N. Gregory Mankiw is a professor of economics at Harvard. He was an adviser to President Bush.

Why the Death of S.U.V.’s?

By Steven D. Levitt

The car companies can barely give away an S.U.V. these days. The latest evidence of this comes in the form of three more closings of factories making S.U.V.’s. According to that New York Times article, S.U.V. sales plunged by more than 40 percent this year, compared to a 16 percent decline for new vehicles overall.

Here is the puzzling thing. The apparent cause of death for S.U.V.’s was high gas prices. Doesn’t that mean that with low gas prices S.U.V. sales should come back to life?
I can think of a few reasons why that might not be the case:

1) Consumers think that the low current gas prices are temporary, and in general gas prices will be high in the future. Thus, they don’t want to get stuck with a vehicle that gets poor gas mileage. The question this raises is why consumers were so sure six months ago that gas prices were going to be high forever (which turned out to be wrong), but don’t believe now that gas prices will stay low.

2) The uncertainty of fluctuating gas prices takes the fun out of owning an S.U.V. Even if gas prices won’t be that high on average, it is so unpleasant to have an S.U.V. when gas prices are high that people don’t want to have them if gas prices are volatile. This explanation seems kind of dumb to me, but maybe it is possible.

3) When gas prices got high, it became uncool to own an S.U.V. Perhaps the process for going from cool to uncool is not easily reversible. Once something is uncool, it remains uncool for a long time, even when the forces that caused it to be uncool recede.

This might explain why the demand for pickup trucks remains strong, even as S.U.V.’s fade. Somehow the spike in gas prices didn’t make pickup trucks uncool in the same way as S.U.V.’s. Similarly, minivans have never been cool (or at least not for a long time); so if this explanation is right, minivan sales should stay strong.

- Which of these reasons do you think is most likely? Or do you have another theory? - McKay

Welcome to the Seniorhall blog!

We covered most of this in class but here are the steps you need to take to comment on a blog.

1) You must first create a username and password.

2) To create this, go to a blog and click on comment.

3) You will then click on "Sign Up Here" next to No Google Account?

4) Your user name will be your FIRST NAME and LAST INITIAL along with your CLASS PERIOD #, you must do it this way so I can give you credit for blogging.
5) You must respond to at least one blog article a week. Your response is counted as part of your participation grade. Each week is over at midnight Saturday.

6) Remember, this is a forum for us to communicate on topics of the day. We do not have to agree with each other's comments...but your comments must be in line with the student code of conduct. Have fun and welcome!

Your first blog article appears below. As you will soon learn I do not always agree with the opinions and stories I post here. I post things I find interesting, relevant, and sometimes just weird.

As if Things Weren't Bad Enough, Russian Professor Predicts End of U.S.

By ANDREW OSBORN

MOSCOW -- For a decade, Russian academic Igor Panarin has been predicting the U.S. will fall apart in 2010. For most of that time, he admits, few took his argument -- that an economic and moral collapse will trigger a civil war and the eventual breakup of the U.S. -- very seriously. Now he's found an eager audience: Russian state media.

In recent weeks, he's been interviewed as much as twice a day about his predictions. "It's a record," says Prof. Panarin. "But I think the attention is going to grow even stronger."
Prof. Panarin, 50 years old, is not a fringe figure. A former KGB analyst, he is dean of the Russian Foreign Ministry's academy for future diplomats. He is invited to Kremlin receptions, lectures students, publishes books, and appears in the media as an expert on U.S.-Russia relations.

But it's his bleak forecast for the U.S. that is music to the ears of the Kremlin, which in recent years has blamed Washington for everything from instability in the Middle East to the global financial crisis. Mr. Panarin's views also fit neatly with the Kremlin's narrative that Russia is returning to its rightful place on the world stage after the weakness of the 1990s, when many feared that the country would go economically and politically bankrupt and break into separate territories.

A polite and cheerful man with a buzz cut, Mr. Panarin insists he does not dislike Americans. But he warns that the outlook for them is dire.

"There's a 55-45% chance right now that disintegration will occur," he says. "One could rejoice in that process," he adds, poker-faced. "But if we're talking reasonably, it's not the best scenario -- for Russia." Though Russia would become more powerful on the global stage, he says, its economy would suffer because it currently depends heavily on the dollar and on trade with the U.S.

Mr. Panarin posits, in brief, that mass immigration, economic decline, and moral degradation will trigger a civil war next fall and the collapse of the dollar. Around the end of June 2010, or early July, he says, the U.S. will break into six pieces -- with Alaska reverting to Russian control.
In addition to increasing coverage in state media, which are tightly controlled by the Kremlin, Mr. Panarin's ideas are now being widely discussed among local experts. He presented his theory at a recent roundtable discussion at the Foreign Ministry. The country's top international relations school has hosted him as a keynote speaker. During an appearance on the state TV channel Rossiya, the station cut between his comments and TV footage of lines at soup kitchens and crowds of homeless people in the U.S. The professor has also been featured on the Kremlin's English-language propaganda channel, Russia Today.

Mr. Panarin's apocalyptic vision "reflects a very pronounced degree of anti-Americanism in Russia today," says Vladimir Pozner, a prominent TV journalist in Russia. "It's much stronger than it was in the Soviet Union."

Mr. Pozner and other Russian commentators and experts on the U.S. dismiss Mr. Panarin's predictions. "Crazy ideas are not usually discussed by serious people," says Sergei Rogov, director of the government-run Institute for U.S. and Canadian Studies, who thinks Mr. Panarin's theories don't hold water.

Mr. Panarin's résumé includes many years in the Soviet KGB, an experience shared by other top Russian officials. His office, in downtown Moscow, shows his national pride, with pennants on the wall bearing the emblem of the FSB, the KGB's successor agency. It is also full of statuettes of eagles; a double-headed eagle was the symbol of czarist Russia.

The professor says he began his career in the KGB in 1976. In post-Soviet Russia, he got a doctorate in political science, studied U.S. economics, and worked for FAPSI, then the Russian equivalent of the U.S. National Security Agency. He says he did strategy forecasts for then-President Boris Yeltsin, adding that the details are "classified."

In September 1998, he attended a conference in Linz, Austria, devoted to information warfare, the use of data to get an edge over a rival. It was there, in front of 400 fellow delegates, that he first presented his theory about the collapse of the U.S. in 2010.

"When I pushed the button on my computer and the map of the United States disintegrated, hundreds of people cried out in surprise," he remembers. He says most in the audience were skeptical. "They didn't believe me."

At the end of the presentation, he says many delegates asked him to autograph copies of the map showing a dismembered U.S.

He based the forecast on classified data supplied to him by FAPSI analysts, he says. He predicts that economic, financial and demographic trends will provoke a political and social crisis in the U.S. When the going gets tough, he says, wealthier states will withhold funds from the federal government and effectively secede from the union. Social unrest up to and including a civil war will follow. The U.S. will then split along ethnic lines, and foreign powers will move in.
California will form the nucleus of what he calls "The Californian Republic," and will be part of China or under Chinese influence. Texas will be the heart of "The Texas Republic," a cluster of states that will go to Mexico or fall under Mexican influence. Washington, D.C., and New York will be part of an "Atlantic America" that may join the European Union. Canada will grab a group of Northern states Prof. Panarin calls "The Central North American Republic." Hawaii, he suggests, will be a protectorate of Japan or China, and Alaska will be subsumed into Russia.
"It would be reasonable for Russia to lay claim to Alaska; it was part of the Russian Empire for a long time." A framed satellite image of the Bering Strait that separates Alaska from Russia like a thread hangs from his office wall. "It's not there for no reason," he says with a sly grin.
Interest in his forecast revived this fall when he published an article in Izvestia, one of Russia's biggest national dailies. In it, he reiterated his theory, called U.S. foreign debt "a pyramid scheme," and predicted China and Russia would usurp Washington's role as a global financial regulator.

Americans hope President-elect Barack Obama "can work miracles," he wrote. "But when spring comes, it will be clear that there are no miracles."

The article prompted a question about the White House's reaction to Prof. Panarin's forecast at a December news conference. "I'll have to decline to comment," spokeswoman Dana Perino said amid much laughter.

For Prof. Panarin, Ms. Perino's response was significant. "The way the answer was phrased was an indication that my views are being listened to very carefully," he says.

The professor says he's convinced that people are taking his theory more seriously. People like him have forecast similar cataclysms before, he says, and been right. He cites French political scientist Emmanuel Todd. Mr. Todd is famous for having rightly forecast the demise of the Soviet Union -- 15 years beforehand. "When he forecast the collapse of the Soviet Union in 1976, people laughed at him," says Prof. Panarin.

Welcome to the Seniorhall blog!
We covered most of this in class but here are the steps you need to take to comment on a blog.
1) You must first create a username and password.
2) To create this, go to a blog and click on comment.
3) You will then click on "Sign Up Here" next to No Google Account?
4) Your user name will be your FIRST NAME and LAST INITIAL along with your CLASS PERIOD #, you must do it this way so I can give you credit for blogging.

5) You must respond to at least one blog article a week. Your response is counted as part of your participation grade. Each week is over at midnight Saturday.
6) Remember, this is a forum for us to communicate on topics of the day. We do not have to agree with each other's comments...but your comments must be in line with the student code of conduct. Have fun and welcome!