Operations Research and The Revolution in Aggregate Economics – Edward Prescott 2012

The extension of recursive methods to dynamic equilibrium modelling spawned a revolution in aggregate economics.

This revolution has resulted in aggregate economics becoming, like physics, a hard science and not exercises in storytelling.

Operations research played a major role in the development of practical methods to model dynamic aggregate economic phenomena and to predict the consequences of policy regimes.

Subsequently recursive methods were used to develop a quantitative theory of aggregate fluctuations and other aggregate phenomena.

Real GDP per New Zealander and Australian aged 15-64, PPP, 1956-2013, $US

Figure 1: Real GDP per New Zealander and Australian aged 15-64, converted to 2013 price level with updated 2005 EKS purchasing power parities, 1956-2013, $US

Source: Computed from OECD Stat Extract and The Conference Board, Total Database, January 2014, http://www.conference-board.org/economics

Figure 1 shows that New Zealand lost two decades of growth between 1974 and 1992 after level pegging with Australia for the preceding two decades.

New Zealand returned to trend growth between 1992 and 2007. New Zealand did not make up the lost growth of the previous two decades to catch up to Australia.

Figure 2: Real GDP per New Zealander and Australian aged 15-64, converted to 2013 price level with updated 2005 EKS purchasing power parities, 1.9 per cent detrended, base 100 = 1974, 1956-2013, $US

Source: Computed from OECD Stat Extract and The Conference Board, Total Database, January 2014, http://www.conference-board.org/economics

In Figure 2, a flat line equates to a 1.9% GDP annual growth rate; a falling line is a below trend growth rate; a rising line is an above 1.9% growth rate.

Figure 2 shows that there was a 34% drop against trend between 1974 and 1992; a return to trend growth and slightly better between 1992 and 2007; and then a recession to 2010.

Australia had its ups and downs since 1956 but essentially grew at the trend growth rate of 1.85% since 1970. The so-called resources boom in Australia does not show up in Figures 1 or 2.

There was no growth rebound in New Zealand to recover the lost ground, either in the lost decades between 1974 and 1992, or after the Global Financial Crisis. The strong GDP growth in Australia after that Keating recession in 1991 is an example of the country recovering lost ground after a recession – See Figure 2.

A trend growth rate of 1.9% is the 20th century trend growth rate that Edward Prescott currently estimates for the global industrial leader, which is the United States of America.

Deirdre McCloskey on Adam Smith’s generalisation

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NSA Intercepts: Richard Posner "Wire Trap"

SeekerBlog

Sorry – I forgot to highlight last week’s excellent analysis by federal circuit judge Richard A. Posner:

. . .there has been little discussion of the program’s concrete value as a counterterrorism measure or of the inroads it has or has not made on liberty or privacy.

Not only are these questions more important to most people than the legal questions; they are fundamental to those questions. Lawyers who are busily debating legality without first trying to assess the consequences of the program have put the cart before the horse. Law in the United States is not a Platonic abstraction but a flexible tool of social policy. In analyzing all but the simplest legal questions, one is well advised to begin by asking what social policies are at stake. Suppose the NSA program is vital to the nation’s defense, and its impingements on civil liberties are slight. . .

[…

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World Wide Weasel Words

thebettereditor

Weasel words – the phrase invokes a vivid visual.

There’s only one problem: which weasel words did you mean?

There are actually two very different uses (…if it were a frequently used phrase, it might qualify for skunking). Let’s get to it.

First, a note: In honor of the gratuitous comparisons and contrasts spawned by President Obama’s visit to Osawatomie, Kansas, this week, 101 years after Teddy Roosevelt did the same, I’m posting on a Roosevelt-related topic.

According to Garner, Teddy Roosevelt was one of the first to attach a definition to the phrase weasel words, in a speech given in St. Louis, Missouri, on May 16, 1916:

One of our defects as a nation is a tendency to use what have been called weasel words. When a weasel sucks out eggs it sucks the meat out of the egg and leaves it an empty shell. If…

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Weasel Words: Social Justice

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By Mike Cronin

When you hear someone speak of social justice, what comes to mind?  The first time I heard the term, I recall wondering why justice needed a qualifier. Over time, I came to realize that it was simply another corruption of language the weasels have been using to push us towards more collectivism; in this case: it sounds so righteous, but it is really just code for the same old thing collectivists always seek: group “rights” and wealth redistribution.

To their way of thinking, it is unjust for a few to accumulate substantially more wealth than others, or for there to be a large difference in incomes and holdings between the wealthiest and the poorest members of society. The supposed goal of social justice is a community wherein there is at least rough parity in the economic outcomes for everyone. The goal is to be obtained regardless…

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Offsetting behaviour alert: KiwiSaver and the Accumulation of Net Wealth (WP 14/22) — The Treasury

Figure 1 - Estimating the impact of KiwiSaver on net wealth accumulation by DiD.

Abstract

The objective of this paper is to analyse the extent to which membership of KiwiSaver has been associated with greater accumulations of net wealth.

The paper utilises two linked sources of data which cover the period 2002 to 2010: Statistics New Zealand’s Survey of Family, Income and Employment and Inland Revenue Department administrative data on KiwiSaver membership.

Two approaches are employed: difference-in-differences (where the outcomes of interest are changes in net wealth) and various panel regression techniques.

Results appear consistent with earlier evaluations of KiwiSaver. Neither approach suggests KiwiSaver membership has been associated with any positive effect on net wealth accumulation.

via KiwiSaver and the Accumulation of Net Wealth (WP 14/22) — The Treasury – New Zealand.

The free market as the foundation of social peace

Judge calls for tourists to sit driving test – National – NZ Herald News

Speaking through an interpreter, Judge Phillips told Sun his driving was “nothing short of atrocious”.

“You were all over the road for no reason, you were drifting around corners, cutting corners and crossing the centre line.

“It’s a classic case of why people need to have examinations done before taking control of powerful rental cars on New Zealand roads.”

I don’t think a driver’s test would fix this obviously irresponsible driver of his lack of regard for the safety of others. He does not have a skill gap as a driver. He is just plain irresponsible.

via Judge calls for tourists to sit driving test – National – NZ Herald News.

A Conversation with Gary Becker: The Future of US Economic Policy

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