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What This Year’s Nobel Prize in Economics Says About the Nobel Prize in Economics

Yesterday the Nobel Prize Committee announced Oliver Willamson and Elinor Ostrom, both from the United States, as the recipients of 2009 Nobel Prize in the field of Economics.  Oliver Willamson is an economist prominent particularly in the area of transaction cost economics.  On the other hand, Elinor Ostrom is a political scientists renowned in the study of common pool resources.  The article highlights how boundaries between economics and other social sciences have become less clearly defined.  While economics exerts great influence over a wide variety of subjects, it seems that the prize is moving toward a Nobel in Social Science, rather than Economics.

http://freakonomics.blogs.nytimes.com/2009/10/12/what-this-years-nobel-prize-in-economics-says-about-the-nobel-prize-in-economics/

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The power of economists

Today we could see a striking example of the power and responsibility of economists. Today a Dutch bank fell after a bank run that was running for a week but the outflow of savings seemed to stop in the weekend leaving the bank in a critical but stable situation. However, when past night the news hit the public that there were liquidity and solvency problems, people started withdrawing savings again on a large scale and the bank fell. Although the bank was already negatively in the news for a while, the initial start of a huge outflow of savings seems to be the television appearance of an econometrist who called upon the clients to withdraw their money from the bank.

http://www.bloomberg.com/apps/news?pid=20601085&sid=aEjFAPw6Ev00

His goal was to benefit customers who are suffering  from excessive lending by the bank. If and how these people will benefit remains to be seen. What is sure however, is that the customers cannot reach their money at the moment and that some of the clients lost their money. With great power comes great responsibility also applies to economists…

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Do not pay, but get paid for education

The best investment a young person can make is in education. Investing now by going to school will pay off later by earning higher returns on a professional career. An interesting article, that touches upon this subject, appears in time magazine. A new program in Paris, stimulates disadvantaged children at three vocational high schools by rewarding them with payments (to be used for further educational purposes). These rewards will be given when students have high attendance records and perform well. Although this might be against an egalitarian principle, one might say that this is born from a leftist (or at least a Keynesian) principle. A free person in the market that comes from an disadvantaged environment, will not automatically maximise his own efficiency. A (government) stimulus is needed as an incentive. Moreover, it seems to work, which is always an pro in the country of economists:

“Similar motivation schemes have worked elsewhere in the world. In the U.S., for example, more than a dozen states have started rewarding students with cash for improved test scores and enrollment in advanced-placement courses. In Britain, the Education Maintenance Allowance (EMA), which focuses on helping children from lower-income families, awards students with monthly payments if they’ve met attendance and performance targets. Like its U.S. counterparts, the EMA initiative puts money directly into students’ pockets to spend as they wish. In the decade since it began, the program has reversed dropout rates by more than 2% annually.”

 Paying students for education can, interestingly enough, also come from a right-winged, free market ideal. In another French experiment, business school INSEAD sets up an investment fund for alumni that provides loans to students. The program is set up, because of increasing difficulties of student loan finance in the current turbulent times. The student here is seen as a commodity which has an expected return, that is above the market return. More interestingly, it adds an extra incentive by appealing to a sense of community, decreasing the investment’s risk:

 “One of the unique things about it is that students are funded by the community of alumni, and potentially the schools themselves. This makes them motivated to repay, because they know their repayments aren’t going to some faceless bank in New York.”

 Although the two examples are relatively different, it emphasises the fact that education has in fact much to do with economics. Education is an investment in “human capital”.

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Ironical about Economics

This video is a quite nice compilation of political speach and a movie.  It’s a video speaking ironically about political decisions and their promises to find the right solutions and deal with economic fluctuations and instabilities, being quite spoken of in this hard crisis situation.

Still speaking ironically about what economics did and still do in influencing people’s lives, this video suggests a funny weird way of haw people may deal with crisis uncertainties and economic instability.

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The financial crisis and blood donations

Here’s an interesting idea on the effect of the financial crisis on blood donations. http://sacstate-communitynews.blogspot.com/2009/03/blood-donations-drop-in-region.html

But as the bad economy has caused a decrease in blood donations, it has also served to lessen the demand.

People who still have their jobs are anxious to take a day off work to donate their blood. Although it might be expected that the unemployed would be more willing to sell their blood, it turns out that they are likely to be upset and stressed, so they do not feel like donating their blood (http://www.economicshelp.org/blog/economics/economics-of-blood-donation/). Moreover, the majority of the blood donations are supported by businesses, of which many have been shut down. These three reasons combined have led to a decrease in the supply of blood.

However, the demand for blood has decreased, ofsetting the decrease in supply:

Botos said Yolo County hospitals have reported a recent and significant drop in elective surgeries and that could account for the decreased demand. 

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Freedom!

What kind of man was Ludwig von Mises? As this unique film shows, Mises (1881-1973) was a man who never stopped fighting for freedom: not when the Nazis burned his books, not when the Left blackballed him at universities, not when it seemed as if statism had won. With courage and genius, he fought big government until the day he died … in 25 books, hundreds of articles, and more than 60 years of teaching.

Mises’s battles against Communists, Nazis, and other socialists, are featured in this film, as are his ideas of Liberty. There is also the old Vienna he loved, the Bolshevik prime minister he dissuaded from Communism, and a cast of villains from Lenin to Hitler, as well as such supporters and students as Murray Rothbard, Ron Paul, Bettina Greaves, M. Stanton Evans, Mary Peterson, Joseph Sobran, and Yuri Maltsev.

Among his many accomplishments, Mises showed that socialism had to fail, that central banking causes recessions and depressions, that the gold standard is honest money, and that only laissez-faire capitalism is fully compatible with Western civilization.

Mises was the twentieth century’s foremost economist, and one of its most important champions of Liberty. Here is a film that does justice to this extraordinary man, and to his equally extraordinary ideas.

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Follow up on Goldman´s history

It looks like Goldman Sachs has been making a lot of money, for years, by playing the rest of us for suckers. Paul Krugman wrote an article about Goldman in New York Times and did not hold back his anger toward this controversial bank. Krugman claims that Goldman has repeatedly created a hype, which they do not belive in themselves, and got out in time to profit enormously. That is exactly what Goldman did when they famously made a lot of money selling securities backed by subprime mortgages — then made a lot more money by selling mortgage-backed securities short, just before their value crashed. Do the bankers of Goldman Sachs know the meaning of the word moral?

Here is a link to Krugman´s article: http://www.nytimes.com/2009/07/17/opinion/17krugman.html?_r=3&ref=global

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The Economics of Happiness

The Economics of Happiness is a relatively new discipline which is trying to find an answer to the question: “What makes people happy?” Happiness is understood as “subjective well-being” which is defined simply as a feeling of satisfaction with individual’s own life. Most of research in Economics of Happiness was trying to identify determinants of subjective well-being. The most usual approach consists in statistical enquiry in which respondents are asked how satisfied they feel with their life (measured usually on the scale for example from 1 to 10). This makes possible to quantify “happiness” and then apply statistical and econometric methods. Surprisingly, this approach has many applications and has so far yielded many new insights. I will now mention one of them which was achieved by Swiss economist Bruno Frey about happiness in relation to marriage and is shown in this graph (SWB is measured on the scale from 1 to 10):

Marriage and happiness

For those who are disappointed by this rather gloomy result, I have also some good news. It seems that the shape of the curve depends on how similar the partners engaged in relationship are. If their personal characteristics are not too different, the shape of the curve is not so sharp. Therefore the satisfaction does not decrease so quickly in this case. The following two graphs show the influences of the size of differences in wage and education on satisfaction with marriage. The dashed curve showes the situation when difference between partners is small and the solid line the case when this difference is large:

Marriage and Happiness

Here you can also find a very interesting article which describes how you can get from happiness to the value of clean air:

http://www.voxeu.org/index.php?q=node/3959

References: Frey, B.S.: Happiness. A Revolution in Economics. MIT Press, 2008

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The use of economics by politicians for political gain

 
Here is an article about the campaign for the Irish referendum on the Lisbon treaty. It is about a statement made by the Leader of the main opposition party (Fine Gael), Enda Kenny. I think it is interesting for the course as it is a politician referring to an economist as an expert. 
 
He also using economics to make a political point. It is also interesting how the treaty itself is not being discussed here but the economic consequences of voting against accepting the treaty. It is as if he wants to confuse the general population with quotes like: “is very clear: A No to Lisbon is a No to jobs,” even though there is no mention about jobs in the actual treaty. He is using the argument that based on the prediction of an economist, Colm McCartey, by voting no it will cause an increase in the cost of servicing Ireland’s national debt. Therefore leaving less room for a “stimulus”. Hardly as “clear” as this politician claims, but by using an economist he (at least in his mind) has some credibility to his statement.

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Interesting facts and theories about Goldman Sachs

Attached is a very interesting clip about Goldman´s history from Cenk at the young turks.

Could it be that Goldman have created artificial bubbles again and again to profit from them? Rising price of crude oil in 2007 and 2008 and Goldman´s gains from it have led some to believe that they had something to do with it. Cenk also wonders if the bankers at Goldman are looting their own shop because of their recent enormous bonuses.

Here is a link to the article Cenk is referring to: http://www.rollingstone.com/politics/story/28816321/the_great_american_bubble_machine/print

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