Thursday, October 21, 2004
Oil Flow and Cash Flow
It's easy to become queasy when governments create and manage commodity stockpiles. So it is with the Strategic Petroleum Reserve which has (inevitably) been politicized.As with all "good ideas", a minute's thought about such reserves suggests they are not. Steve H. Hanke summarizes all of this very nicely in today's WSJ ("Over a Barrel"). He even suggests how to make a good idea out of a bad idea:
" ... why not replace government-mandated release rules with a market-based approach? To do this, the government should sell call options on its oil stockpile. By doing this, it would generate revenue to defray some of its stockpiling costs. More importantly, the market would decide the release rates for the SPR. In consequence, the volatility in the oil markets would be dramatically reduced. In addition, spot prices would fall like a stone and once again be lower than futures prices."
Politicians (and media and other elites) do not easily grasp or accept economic thinking. Yet, Hanke's idea includes a cash flow aimed in their direction.
Tuesday, October 19, 2004
New and Exciting
In a recent post, I mentioned authors who developed book-length explanations of nearly everything, making use of the interactions of geography and selection -- and time. Jared Diamond's Guns, Germs and Steel is an example, as is Paul H. Rubin's Darwininian Politics.In "Learning, Institutions and Economic Performance", C. Mantzavinos, Douglass C. North and Syed Shariq go considerably further.
Evolution gave us beings with brains and beings with large brains make choices, some good and some bad. The authors make use of the latest insights from cognitive science and conclude: "The analytical framework presented here provides a first approximation of the role that learning plays in the formation of institutions and in the economic games unfolded within them."
Why didn't anyone teach this stuff when I was learning economics?
Monday, October 18, 2004
Nothing New
This morning's WSJ includes an efficient-markets-vs-behaviorists (Eugene Fama-Richard Thaler) contrast on its front page -- and the suggestion that efficient markets economists are learning from the behaviorists: "Belief in Efficient Valuation Yields Ground to Role Of Irrational Investors ..."There is, of course, the policy interest in light of social security privatization discussions.
The WSJ piece also notes that both, Fama and Taler, participate in portfolios that are not simply index funds. In other words, both act as though both sides' position is (half) correct. Many people in the market do make money -- and not simply by being lucky or by being wholly invested in index funds. They do so, expecting that there is always some short-term irrationality, to be remedied by long-term rationality -- and being wise enough to get it and taking appropriately timed action.
Put this way, there is absolutely nothing new under the sun; the whole learned debate leaves us where we have always been.
This is why, in a world of pension choice, some will opt in and some will opt out. Of the former, some will do well and some will not. The loosers will, of course, seek (and often get) political remedies. That's also old news.
What has changed? When social security was first hatched, self-directed accounts were not a serious option. Today, they are. The cohort of people who demand to steer their destiny has been growing and will continue to grow.
