Friday, February 27, 2009

Keynes The Optimist

Keynes, I think before he said that in the long term we're all dead, in Economic Possibilities for our Grandchildren, a short paper presented before students of, according to Bob Solow, a less-snotty-than-Eton public school, Winchester, wrote:
We are suffering just now from a bad attack of economic pessimism. It is common to hear people say that the epoch of enormous economic progress which characterised the nineteenth cen­tury is over; that the rapid improvement in the standard of life is now going to slow down ‑-at any rate in Great Britain; that a decline in prosperity is more likely than an improve­ment in the decade which lies ahead of us.

I believe that this is a wildly mistaken inter­pretation of what is happening to us. We are suffering, not from the rheumatics of old age, but from the growing‑pains of over‑rapid changes, from the painfulness of readjustment between one economic period and another
I think this is relevant to current world economic affair, as well as to Indonesia.

Thursday, February 26, 2009

Dark Stuff That Makes You Statistically Smart

Ziliak and McCloskey, by way of Tim Harford, reveal that Student's t-test, a very important statistical test, refers to William Sealy Gosset. This man wanted to know how many experiment with hops, malt, and barley, needs to be done to produce a considerable confidence of the result in pursuit of good beer.

That beer is known as Guinness, the exquisite dark stuff that probably is the greatest Irish contribution to the world. Better than James Joyce or the U2.

Lift your pint and make a toast for Gosset, but I am not sure for which one: the Guinness or his t-test. Maybe both.

Tuesday, February 24, 2009

Animal Spirits Explained (Not Yet)

I still find the New Keynesian approach for short term output fluctuation is one of the finest theoretical explanation. You can find the summary of their research in chapter 6 of the standard Romer's Advanced Macroeconomics. Their models are so cool in explaining the seemingly irrational behavior that was not yet elaborated in the old Keynesian school.

But against the backdrop of current crisis, Akerlof and Shiller in their latest book Animal Spirits, want to move further. They argue that New Keynesian approach is good to explain the small fluctuations, but not a deep crisis. Instead they believe that animal spirits --Keynes' phrase for irrational behavior- is responsible for such exuberance, booms, and eventually bust.

They offer some working proposition by describing five aspects of animal spirits: confidence, fairness, money, illusion, corruption and anti social behavior, and stories (or narrative).

Alas, until the end of the book, I fail to grab a coherent theoretical construct, or even its prospect. They, less fruitfully, go back to old battle by bashing new classical approach and, this is rather disconcerting, relying too much on anecdotal evidence. Plus some I-told-you-so tone.

Akerlof's paper on the market of 'lemon' is one of my favorite model. And I certainly expect more with his credential, including winning the Nobel. But maybe winning Nobel is a bad signal nowadays (think of Stiglitz and Krugman).

I am still looking forward from them, though, that eventually, a neat theory of animal spirits in macroeconomics come up and stands up for academic test. And they can take their time to do this, without hurrying to publish a book just to catch up with daily conversation topic at the moment.

The US Stabilization Policy Proposal

As read in In An Uncertain World by Robert Rubin, in the Asia crisis chapter, Larry Summers was there to push stabilization policy. He even flew to Jakarta, talked to Soeharto, and, despite his credential, was left speechless against that old man.

Now, as the US economic crisis seems more and more resemble the Asia crisis ten years ago, I can't help to think why they are not confident to adopt similar policy for fiscal conservatism, more market based reform, and good governance. If it works for us, it likely would work for them, too.

And it did and does work for us.

Monday, February 23, 2009

Sunday, February 15, 2009

My (tentative) Take on Our Fiscal Stimulus

Do we, Indonesia, after all, need a fiscal stimulus?
I am not sure, probably no.

Will our current stimulus plan give the bang for the buck?
I don't think so.

What do you think?

Thursday, February 05, 2009

Non-economic Perusals

It seems that we've been to much discussing uncool stuff like general election or the US economy. It's time to chill out a bit and talk about literature.

Critics are going gaga over Roberto Bolano's 2666. After The Savage Detectives, that I never finished, this 900 something pages has just been posthumously published. I've just checked it out from the library. Of course, god knows when I will have time to read that, but from first several pages, I'd say it'll be better than the Detectives, albeit its length.

The last novel that I just finished is The Taqwacores --a recent underground hit. Think of JD Salinger plus Hunter Thompson plus Salman Rushdie, all blend into this radically blasphemous small book. So bad that it's good, so wrong that it's honest, so hopeless that it's hopeful. A genius work of Orwellian controlled insanity at maximum level.

Two strong conditions for readers: be very, I mean very, open minded and willing to dig and read between the lines. Otherwise I bet you will be excruciatingly mad, feel grossly offended, and probably want to hang the author. The smallest possibility this book may have is to be legally published in Indonesia.

Tuesday, February 03, 2009

Transfer Is Not Social Cost

I can not believe that Yudi Latif, in today's Kompas Analisis Politik, doesn't get the social cost-benefit analysis of general election right (and presumably, the Kompas editor, too).

We know the benefit of general election is to have better government and public services provision. But apparently it takes a bit of more time to understand its cost.

Yudi thinks the political ads spending is social cost. It is not. The same goes for the spending of political consultancy, polling, printing banners, free T-shirt, and even money politics. They are all transfers. The money does not go out of the economy --or GNP, as Yudi said. It just has the ownership shift from politicians to advertising company, political consultant, T-shirt maker, and potential voters.

Does it mean general election doesn't have social cost? No. When you involve in and spend resources for general election-related activities, alternatively you can work on something more productive --perhaps by staying in academics. Your time and energy to otherwise produce good lecture is the social cost.

The overall election's social cost can be higher or lower than the benefit, but you'd better be clear on this. Particularly when you relate this to someone's argument that democracy is more suitable to the nation with economic surplus than one with deficit (whatever it may mean).

Maybe, but surely not because of such cost-benefit analysis.