Economical Thoughts

Mobile computing

economicalthoughts — Tue, 27 Dec 2011 07:49:09 +0000

Forbes reports that iOS devices accounted for 13.4% of online sales on Christmas day (7% were made from an iPad). Android devices accounted for 7% of Christmas day online sales. While most of this is probably due to people loading new apps on their new tablets and smartphones, the rise of mobile computing is moving at a remarkable pace. The last few months have seen the introduction of a growing variety of $100-200 android tablets and free (older model) iphones and android phones with the purchase of a 2-year contract.

It will be interesting to see how higher education will change in response to the widespread availability of low-cost mobile computing. Will faculty see cell phones and tablets as nuisances to be banned or as useful instructional tools?

Liquidity trap economics

economicalthoughts — Thu, 11 Aug 2011 19:41:40 +0000

As Congress and the President continue to struggle over who can create the most damaging fiscal policy, the Fed announced that it will work alone to try to provide some economic stimulus. Unfortunately, this policy is likely to continue to be ineffective. The graph below explains why.

Providing low-cost reserves to the banking system will have no effect if there are no additional profitable lending opportunities. There will be few profitable lending opportunities when we have so much excess capacity and such sluggish growth. The dramatic growth in excess reserves illustrates this problem very well.

It seems that U.S. policymakers have learned nothing from the lessons of the Great Depression, nor from the more recent experience of Japan and Europe. Monetary policy was remarkably effective since WW II in reducing the magnitude of cyclical fluctuations. The liquidity trap, though, has returned with a vengeance.

I suppose we should be grateful that those charged with monetary policy are not working to make the economy worse.

FoxBusinessNews assigns fiscal policy to the Fed

economicalthoughts — Thu, 17 Mar 2011 20:26:42 +0000

In one of today’s “fair and balanced” reports, Fox Business News has just placed the Fed in charge of fiscal policy. I hope that they take this more seriously than Congress seems to be.

(Do they have no one there with even a high school understanding of economics? Or can they not afford the compensating wage differentials that would be required to force someone with any knowledge of economics to read through their stuff?)

Wisconsin, inflation, and real wage growth

economicalthoughts — Thu, 10 Mar 2011 19:45:29 +0000

The Republicans in Wisconsin, in secret session behind locked doors, were able to pass a law last night that prohibits state employees from engaging in collective bargaining for any wage increases that exceed the inflation rate. At first glance, this may seem reasonable, in that it allows state employees to attempt to try to keep up with inflation. In a world in which real productivity growth is usually in the range of 1.5-2.0%, however, this guarantees that the relative pay of state employees will decline over time if such a policy is maintained. While productivity may grow at a slower rate for many public-sector employees (due to the nature of their occupations), equilibrium wages tend to rise by similar amounts in all occupations over time. If they don’t, workers leave the occupations in which relative wages are declining and enter the areas in which relative wages are rising.

If real wages for public sector teachers do not keep up with wages of private sector employees, only the least capable individuals would tend to select public sector employment. Then, you could end up with a Governor and state legislators who are incapable of understanding how labor markets function.

The Nobel Prize, the Senate, and the Fed

economicalthoughts — Mon, 11 Oct 2010 15:05:02 +0000

Peter Diamond is one of this year’s recipients of the Nobel Prize in Economics. Yet, his nomination for a position on the Federal Reserve Board of Governors has been blocked for months by Republican Senator Richard Shelby.

In the Nobel committee’s press release, it is noted that the economic models developed by Diamond and his fellow recipients “help us understand the ways in which unemployment, job vacancies, and wages are affected by regulation and economic policy.”

Shelby argues that Diamond is unqualified for a position on the Fed.

A few months ago, a Pulitzer prize was required to get Mark Fiore’s app on iTunes. Will it take a Nobel Prize to get Diamond on the Federal Reserve Board?

It’s rather hard to believe that this stupidity will prevail.

A growing student quality gap?

economicalthoughts — Tue, 24 Nov 2009 18:58:16 +0000

Caroline Hoxby finds, in a recent study, that the 10% most selective colleges and universities have become more selective since 1962 while the majority of colleges have become less selective. This seems to be related to an increasing willingness of students to attend more distant colleges and universities (possibly due to decreasing transportation and communication costs). Since the most selective institutions receive a larger and more geographically diverse applicant pool, they have been able to become increasingly selective. Increases in financial aid awards at select colleges have further raised the quality of the applicant pool by lowering the relative cost of attendance.

As the most selective colleges and universities have become more selective, the majority of colleges and universities have become less selective. This leads to a growing gap in the average measured quality of students in elite institutions and those in other institutions. On the one hand, this may mean that students end up selected into institutions in which there is more homogenous levels of human capital among entering freshman. This may be desirable for society t0 the extent to which it makes it possible to tailor instruction to students with relatively similar prior academic backgrounds and preparation. To the extent that students learn from their peers, though, the growing homogeneity of student ability within institutions could lead to a growing gap in the amount of human capital accumulation in college. While interactions among the best and the brightest students help to enhance their learning, students in most institutions will have a smaller proportion of peers in the upper tail of the measured ability/performance distributions. The relative rate of return to “select” institutions may continue to rise relative to that of attending more typical colleges and universities if this student quality differential continues to expand.

Personal safety devices that decrease safety

economicalthoughts — Mon, 09 Nov 2009 16:43:38 +0000

An interesting article at MSNBC on personal locator beacons provides an interesting example of an economic concept in action. The existence of personal locator beacons lowers the cost to novices of engaging in riskier hiking adventures. This leads to greater risk-taking, especially when society bears some of the cost of the increased risk. We see many similar examples of this concept in action:

The existence of deposit insurance, combined with banking deregulation under Reagan (and later G.W. Bush) encouraged people to place more deposits in those institutions that offered the highest returns, without regard to default risk (since they are insured against that).
Bailouts of financial institutions that have engaged in especially shortsighted and risky behavior may reduce the incentive for other firms to engage in more prudent behavior.
The existence of medical treatments for some of the health consequences of obesity have at least partly reduced the incentives for individuals to watch their diet and exercise regularly.

Education and Democracy

economicalthoughts — Tue, 03 Nov 2009 14:57:15 +0000

Edward Glaeser argues in his Economix blog post today that countries with high levels of education are much more likely to have strongly democratic insttutions. While Thomas Jefferson made a similar argument a few centuries earlier, Jefferson’s econometric skills were a bit more limited.

In a political environment (and on an election day) in which prevarication still seems to often be the norm, it is encouraging to think that continuing increases in human capital investment will help to improve political debate over time. John Stuart Mill made a similar point in 1863:

It is better to be a human being dissatisfied than a pig
satisfied; better to be Socrates dissatisfied than a fool satisfied.
And if the fool, or the pig, are a different opinion, it is because
they only know their own side of the question. The other party to
the comparison knows both sides.

Good Economic News?

economicalthoughts — Mon, 02 Nov 2009 18:56:47 +0000

While the news of 3.5% growth in the third quarter of 2009 is encouraging, a full recovery is quite a ways off. The most recent national unemployment rate estimate is 9.8% (seasonally adjusted). As Krugman notes in his blog yesterday, at the current growth rate, it will take about a decade for the unemployment rate to return to something approximating full employment. A Taylor rule policy would keep the Fed at a near-zero interest rate target for the next 6 years.

Unless the pace of economic growth rises, it’s going to be a slow recovery. The last two recoveries were referred to as “jobless recoveries” because unemployment started to improve long after real GDP growth rose. If this occurs again, the economic climate may not feel much better for a while.

… and we wonder why economics is still called the dismal science… It is, though, at least a bit less dismal than in the days of Ricardo and Malthus

The death of competition in learning management systems?

economicalthoughts — Thu, 07 May 2009 17:16:12 +0000

Yesterday, Blackboard and ANGEL Learning announced that Blackboard has acquired ANGEL Learning systems, its last major competitor. In 2001, Blackboard had acquired Prometheus; WebCT was acquired by Blackboard in 2005.

From the standpoint of Blackboard, this merger makes a great deal of sense. In 2008, Blackboard’s market share in community colleges fell rather dramatically (I have not yet found statistics for other colleges and universities). The proportion of community colleges using ANGEL last year more than doubled, while the proportion of community colleges using Blackboard fell by about 3 percentage points and the proportion using WebCT fell by about 15 percentage points. The reasons for this shift are fairly obvious: ANGEL is substantially less expensive, has been more responsive to the instructional needs of faculty, is easier to use, offers substantially more features, and has displayed a remarkable record of innovation. ANGEL has been somewhat unique in providing new releases every year that include substantial product improvements and enhanced functionality. The only other company with close to a 5% market share is Desire2Learn, which has had its growth hampered by Blackboard’s lawsuits.

This move also makes sense for Indiana University-Purdue University Indianapolis, who will be the largest recipient of the $95 million purchase price. The current recession has seriously damaged the budgets of most colleges and universities. This sale represents a convenient windfall in a time of very tight college and university budgets.

Will the Obama Justice Department allow this further reduction of competition in the LMS market? If you would like to voice an opinion on this, give the Networks and Technology Enforcement Section of the Justice Department a call at: 202-307-6640.