Saturday, April 3, 2010

"Fear the Boom and Bust" a Hayek vs. Keynes Rap Anthem

I would like to give a big shout out to the creative minds that produced this video.

Here is the intro: In Fear the Boom and Bust, John Maynard Keynes and F. A. Hayek, two of the great economists of the 20th century, come back to life to attend an economics conference on the economic crisis. Before the conference begins, and at the insistence of Lord Keynes, they go out for a night on the town and sing about why there's a "boom and bust" cycle in modern economies and good reason to fear it.

See the YouTube Video HERE!!

To aid the appreciation:
Hayek won the Nobel Prize in Economics in 1974 for his "pioneering work in the theory of money and economic fluctuations and penetrating analysis of the interdependence of economic, social and institutional phenomena." Most importantly, Hayek wanted government to provide limited takes and leave the rest to the free markets. He viewed the free price system, not as a conscious invention (that which is intentionally designed by man), but as spontaneous order, or what is referred to as "that which is the result of human action but not of human design". Thus, Hayek put the price mechanism on the same level as, for example, language. Finally, Hayek believed that government intervention distorted the price system that was required for sustainable economic growth. Reference

Keynes is credited with being the father of intervention. He advocated that governments, using fiscal and monetary policy, can smooth the business cycle. In times of recession, deficit financing by governments could increase aggregate demand and stem the worst of the bust. He thought this necessary since the full employment assumptions of free market theorists was a special case. He took the Great Depression as the case and point. Keynes never won a Nobel Prize because he died (1946) before the first price in economists was awarded (1969). Reference
What are the "animal spirits" Keynes speaks of: "Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits - a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities." (reference)

Thursday, November 19, 2009

When you die, what will happen to your hockey cards?

If you are a long-term planner, you might have already formally decreed your wishes so the government will not be the one dividing up your hockey cards among your friends. For the rest of us, single or married, young or young at heart, is going to the trouble and expense of making a will worth it?

Recently, the Globe and Mail did a quick online plug for the law profession on why we need a will. They said: "When you get married, you become financially tied to another human being. At this point, people consider buying life, as well as critical illness and disability, insurance. Honeymooners might also need travel insurance. Writing a will may not be romantic, but it’s a task newlyweds can’t ignore if they want to protect each other in the event of a tragedy." Well, that sounds like there are very grave consequences to not having a will for newly weds and the rest of us. So, I had to get to the bottom of this.

As I further read the article, it did point to some important situations where a will would be helpful in distributing your wealth. For example, if you want to prevent family feuds, if you want your spouse and kids to share your insurance money, or if you want to make sure King's gets some cash and Danny-boy will likely spend it all on a new BMW (OK that was not in the article but it should have been...). Also, if you want to give money to a charity or your alma mater (did I already say that?). According to this article, I gathered that: If YOU want will get a lot of utility in knowing who gets what (i.e. if you want to ice someone out), then a will is for you. If you don't care, let the government (and your family) figure it out when you die. But, is there grave consequences for newly weds if they don't get a will?

Because I don't have a will, I want to know: If I die tonight, what happens? The answer (from what I can tell): my wife get everything in both our names, the government will likely give her the rest. At the very least, a hand written document (some lawyer is surely going to yell at me to saying that), signed and witnessed is one step in the write direction. Having someone carve your wishes in stone is the gold standard and you are improving your changes of making your wishes clear - this is the benefit. The cost is in terms of time (hard to quantify) and the fees (anywhere from $250-$1000). So, weighting the costs and benefits: Is it worth it? When you are lying in bed ask yourself: Should I pay to save others some grief and to have a say over my stuff when I die?

My view: I think the person who benefits from the will should pay to have it done. If they don't want the trouble, they might very well pay for you to write it up. It seems to me that the benefit to the individual whose stuff will be up for grabs is far less than the benefit to those who have to clean-up the mess once they die, I think I need to start a company called: - if you know what I mean.

So, this holiday season, preferable at the dinner table with everyone around, decide who is going to pay - if your parents don't have a will you might consider making an offer. Of course, you can always ask for that Wendel Clark Rookie Card you have always had your eye on in the process.

Helpful link I used: HERE I am not a lawyer and can't give legal advice, so please take this for what it is: An economist talking about wills.

Tuesday, November 17, 2009

What, so I took a short break ... again

Dear Blog,

Sorry, I have not been givin' you da love. It was not you, it was me. You see, time is costly and the marginal benefit of another post was low.

I have not forgotten you. I will return.

Friday, March 13, 2009

A must see: Jon Stewart and Jim Cramer

I will be share this with my class next week and I think it is a must see:


P.S. I know that I have failed many of my readers in that I have not explained the turmoil well enough. What can I say, teaching and working has been more intense than ever. Unsurprisingly, recessions are not good for a economist's workload.

Sunday, January 11, 2009

Pulling new rabbits out of the marco bag

In a matter of months, the focus and discussion of macro economists has done almost a 180 degree turn; peak oil talking-heads have taken a brake and fiscal stimulus is headed our way on Tuesday. What a perfect time to be teaching!

The first two teaching experiences I was able to use the textbook as a current/up-to-date source; the 'digging deeper' and 'focus boxes' fuelled our discussions of timely issues. Now, the text seems old and uninteresting. Two years ago this would have added a bit more work and cause some pain, but now, it is like wind in my sail.

Yes! I am happy to be teaching again! In the first lecture I told my class that I expected all of them to drop everything (other courses), take more economics courses and join us. Why? Because we will need their help! It seems that the global economy provided enough events in the past 6 months to keep a millions economists working for a career or two (example: here ).

A Brief History: In the throws of the depression, a member of the Canadian House of Commons stood-up and said: "What about these experts on the political economy, have they nothing to offer us? Nothing at all?" For decades, economists were held in lower social esteem. Then enter J.M. Keynes and crew, the social welfare state followed, and we slowly but surely gained some steam (every respectable company had a Chief Economist by 1972!). And then: Stagflation of the 1970s took hold. Economists were once again scrambling to find answers and once again we struggled to provide solutions to the economic ills.

Today: I have written recently that I think there has been a rise in economics's popularity but, once again, we are at risk of being put into the path of tomatoes and other like items if we cannot muster solutions. Now, the world is watching and we are banking on our tool kits to get us out of this!

After 18 years of expansion, the Canadian policy makers are being put to the test and it is exciting to be training young minds at such a time.

Thursday, December 11, 2008

Giving to the alma mater: Why?

Do you give money to your alma mater? If not, does it have anything to with your experience at the school? For Canadians, despite their fond experiences at Canadian universities and colleges, they don't give back to their alma mater; and, perhaps, it's not obvious why one should.

In Canada, students enter a post-secondary institution under the following assumptions: I and/or my family pay tuition and taxes fund the rest; once I finish paying tuition, my obligation is fulfilled. By contrast, American schools strike a much different deal with their students upon admission: You pay tuition now, but give more later (implicitly: based on your success). From the first day students set a foot on Harvard campus, they know that alumni have given so they could have excellent experience; and, once they graduate, they are expected to (and about 60% do) give what they can to keep the excellent experience going. In Canada, the best participation rates are near 30% (Trinity College at UofT and Mount Allison take this lofty ranking), while the average is close to 10% - which is 50% less than top US schools.

In summary, I argue that Canadians and Americans differ in the type on the agreement upon admittance with their students. On average, 90% of Canadian university graduates don't feel that it is necessary to donate to their university's annual fund because they don't think that giving after graduation was part of the deal (so to speak). Economic incentives help re-enforce this belief because, perhaps for many, the 'perceived' benefits to getting a degree are given at graduation with no strings attached; I say 'perceived' because the returns to education is not the piece of paper but the benefits realized throughout one's working life (for example, a higher salary or happiness in a profession). From what I understand, American schools help counter act this attitude by social pressure if you don't give (someone might show-up at your place of employment).

Why do I give? At the University of King's College, the New Academic Building was raised a few years ago with no government funding to cover the $9 million bill. From a very small University community (1120 students currently), this was a huge effort. To everyone involved, it was clear that if they believe in the institution, they wanted to keep it alive, and they appreciated that others gave before them so they could have the King's experience. The obligation I feel comes from two factors: (1) I believe in the institution; that is, I want it to live on; and, (2) because I had a great experience as a result of others giving to the university, it is now my turn to give back.

Finally, let me clarify a misconception. Giving to the alma mater's annual fund is not about the amount of money collected, but the number of alumni giving. In the US, the participation rate in the annual fund is used to recruit top talent because it says: "people who came to this place found it of such value, they give back in thanks". Not surprisingly, big donors often ask about participation rates because they want to know if the experience is of value.

The motto of the Wardroom 30th Anniversary Renovation Campaign - an alumni led project to renovate the campus bar at King's is:

"Those who came before us gave so we could party, and now we give to keep the party alive!" - perhaps it should be shortened to "Keep the party alive!"

King's Alumni or anyone else can give online: - tax receipts are given for anything over $10.

Wednesday, December 10, 2008

A description of recent events: The Black Sawn Drive ...

Sorry I have been away. I have been very busy with some recent volunteer work (at the University of King's College ) and, because of my position, it is difficult to provide guidance on the post-Lehman Brothers intensification.

However, there has been some great research produced of late. Most interestingly, the article (dated November 20th) by a group of researchers at Desjardins (article here!) said that puts into perspective why many of us have been left speechless:

"In the past month, investors have observed two events so rare that, when last witnessed, Franklin Roosevelt was midway through his second term as President of the United States—only eight single-day rallies in the S&P 500 have exceeded 10% since 1928, with the 11.58% gain on October 13 representing a ‘10.06-sigma’ event, and the 10.79% rally on October 28 being a similarly unthinkable 9.34 sigmas.

As rare as these events may seem, they are not nearly rare enough (at least according to the normal distribution). To put the recent experience in context, daily returns exceeding 7.5 standard deviations should only occur roughly once every 33 trillion trading days; to have observed even a single such event, the universe would have to have been approximately 10x older than it actually is!"

It is a great time to be an economist. These are historic times that will change the way we think about the world, models and how we evaluate risk. After all this is said, I am really looking forward to teaching again in a few weeks. More postings to come.