Xavier Gabaix's Behavioral New Keynesian Paper

There's been an interesting paper that has been just out and it's utilizing bounded rationality (an important concept from Behavioral Economics) into the mainstream New Keynesian model. I have been expecting this for a while now and it's great that the paper has finally been written. I also expect to work on something close to this in the near future!

Very Interesting Forbes article on Behavioral Economics and Healthcare

While I might not fully agree with the author's opinions in this particular article, I find it a quite interesting short read. While behavioral economics usually reaches the right conclusions, I find the author's opinion on behavioral economics and healthcare to be quite fascinating.

The Democrats Have Lost Me with their $15 Minimum Wage in their Platform

I believe that the Democrats have made a grave decision by including the wrong-headed $15 minimum wage by including it as part of their platform. Many people regard this as a radical idea, but I regard this as an economically inefficient and completely nonsensical idea to boost poverty in the United States. Why are they wrong? Here's my take on the idea.

1. Minimum Wage of $15 Will Almost Never Boost Poverty: Wages are generally set by the market in every sector and this corresponds almost exactly to the goods and services that our consumers purchase from that company or that organization. The minimum wage was never intended to be anything but to maintain that the person to be working at the minimum rate to receive anything but a level barely above a subsistence level. Franklin Delano Roosevelt and the New Deal government at that time never meant it to be anything but such, rather than a "living wage". There is also the moral judgement of whether we should reward workers who might not contribute enough economically to warrant such a wage. Surely it will have negative consequences on the wages of other workers.

2. Minimum Wage of $15 in an era of globalization and will cause an increase in goods and services: Minimum wages will not work in an era of globalization. With factory jobs and other positions located elsewhere, there is good impetus for companies to outsource the positions if the prices are too high for them to be located in the current location. If it is a job you cannot outsource, it will just lead to inflation on goods and services which will be extremely detrimental to the customers and also on workers. It will not really increase the wages in that sector if it will cause goods and services to adjust accordingly.

3. Minimum Wage of $15 Will Lead to Further Unemployment: A majority of empirical studies, including this one conducted by the Congressional Budget Office, listed that it will indeed cost jobs. Let's use a generalized example here: What if a business that produces $20 dollars and by hiring two workers at the current federal minimum rate of $7.25 will help it to generate a profit of $5.50. What if that business can no longer make a profit by the new minimum wage laws? They will most likely have to adjust their business strategy by laying off or not hiring any workers. This especially applies to the young that are just starting out in the labor force and unskilled laborers. This will just put more people out of work and into taking more federal welfare money. The United States already has the population roughly the size of Spain on welfare and we don't need another Spain without making the federal budget deficit even worse.

4. Fight for Fifteen? How about a fight for 25 or 50: If they have a rationale for $15 a hour, why not $25 a hour or $50 a hour? Where are they getting their numbers from? If these qualified policymakers think that increasing the minimum wage will not cause any increases in how the other factors are calculated, then the opinion from economists do not matter!

I think it's better if both parties listened to economists and realized that increasing the minimum wage above the appropriate price ceilings, it will have a detrimental effect on the economy as a whole. It will lead to unemployment, inflation on good and services and worst of all, more outsourcing! There are many other ways of increasing the welfare and the livelihood of people rather than increasing the minimum wage, which is a detriment to how the labor markets function.

A Well Written Short History/Introduction to Behavioral Economics

Here is a short history and introduction to Behavioral Economics for those that are interested in the field. I find it a good introduction to Behavioral Economics even though Richard Thaler's Misbehaving: The Making of Behavioral Economics is a better and a more in-depth breakdown of the field.

Good Hoover article on the Rise of Scientism

Just reading through a plethora of online articles, I found something that can be applied to economics, which is the idea of rise of "Scientism". Here is the article that is posted on the Hoover Institution website. It's quite interesting to think of how it relates to all of the 'competitive discussion' within the economics community. All of theories in each of the competing different schools of economic thought comes to mind! A good article and good food for thought for those who are interested in trying out new ideas or just a good read in general as "Scientism" is something to be entirely avoided in our field.

June Reading List

Since I have started to be busy this month working on more important details, I will list my June AND July Reading List this month. I will also catch up on the books that I have not completed from the previous months and they will not be listed on this list. This means the list I have here will be much more brief than previous lists.

Econ Books:
1. Nahid Aslanbeigui & Guy Oakes - The Making of a Cambridge Economist
2. James Rickards - The Death of Money
3. Robert J. Shiller - Irrational Exuberance

Non-Econ Books:
1. Graham T Allison - Essence of Decision: Explaining the Cuban Missile Crisis

May Reading List

Here's my May Reading List:

Econ Books:

1. Robert J. Gordon - The Rise and Fall of American Growth (from April)

2. Akerlof/Shiller - Phishing for Phools: The Economics of Manipulation and Deception

3. Paul Samuelson (edited) - Inside the Economists' Mind

Non-Econ Books:

1. Martha Nussbaum - The Frontiers of Justice (continued reading)

Great Paper on the New Keynesian model

As I was scourging through interesting papers, I found a very interesting paper written by Cohen-Setton, Hausman and Wieland on the New Keynesian model. Within the contents of the paper, they discuss the New Keynesian model and it's effect on supply-side shocks in depressed economies. They utilized a very interesting example in France and its economy after a special measure where they had lifted the gold standard and set interesting economic measures. The results are quite fascinating and the paper goes into quite detail utilizing time series and a fantastic model to describe what had happened in detail. I'm still reading the paper, but it looks like they have found the key to the current debate over structural reforms within both the United States and the European Union. By utilizing these structural reform measures that were recommended before, the example shows that it doesn't particularly work very well in times of rare financial crises. A good read for anyone who is interested in these pressing matters, along with observing the model that they had utilized.

New Economic Theory Missing the Point or Could Be Right On Point?

This latest blog post will explore some ideas that I have gathered by reading Noah Smith's blog. In a blog post about two interesting articles read by Noah Smith about new paradigms in economic theory, it is definitely interesting to think about new possible paradigms in economic theory as the field of theory has somewhat stagnated as of late. While it is interesting to think about all of the stuff Nick Hanauer and Eric Liu have to offer, I want to nail it down to an idea that I have on what they have written.

In the article, they talk about social preferences and cooperative games. I have explored both of these interesting concepts in previous thought bubbles, with some of the others as well and it has given me an excellent idea to write a working paper on this particular issue, which excentuates what some others have worked on in social preferences and cooperative games. What I'm going to do differently in this working paper is utilize them to talk about methods of how it interacts with certain fields in Political Economy. While I can elaborate in person about these issues, it would be utmost difficult to surmise that I can find a solution here to the question at hand right away. For those who are interested in these new possible paradigms in Political Economy, I am also combining it with other more established methods of research that has been conducted it before. For those who are interested in what Hanauer and Liu have written in this short, but rather informational piece, the link is here.

Reading List for the Months of March and April

As we have reached the middle of March and Spring is in the air, I will post my reading lists for the months of March and April. This is a bit late for my usual reading list for the month, so I will post two months as I did last month already. I have already finished several books and I will list them along with the books I'm currently reading.

Already Finished:
Joseph Schumpeter's Two Theories of Democracy - ed. John Medearis
Leo Strauss's Defense of the Philosophic Life: Reading "What Is Political Philosophy?" - ed. Rafael Major

Econ Books:
1. John Maynard Keynes: Volume 2: The Economist as Savior, 1920-1937 - Robert Skidelsky
2. Capitalism, Democracy and Socialism (re-read) - Joseph Schumpeter
3. Why Nudge?: The Politics of Libertarian Paternalism - Cass R. Sunstein
4. Advanced Macroeconomics - David Romer (re-read of advanced undergraduate material)
5. Lectures on Macroeconomics - Olivier Blanchard and Stanley Fischer
6. Monetarist Economics - Milton Friedman

Justin Wolfers' Interesting Article on Bernie Sanders' Economic Plan

There has been considerable conversations over Bernie Sanders' economic plan over the internet and among several top macroeconomists in the United States. Among the economists that are talking about Professor Gerald Friedman's plan that has estimated a Sanders Presidency would greatly improve the economy of the United States with its plan of completely transforming the country into one that more or less resembles that of the Nordic social democratic societies. As my father is on the faculty at one of the University of Massachusetts schools, it's interesting to consider Professor Friedman's analysis of the Sanders economic plan. I personally think that the universal healthcare program that he has promoted is while valid, it might not be the plan of action. The Nordic welfare states (Norway, Sweden, Finland and Denmark) were created earlier on in the century and had promoted a decent foundation for their societies as a whole to function on a very high level. They were created when these states did not have any nationalized program of any sort or extremely complex healthcare systems. They were relatively small and homogeneous at that period of time. My main problem with Sanders' plan is that it does not go into detail about how and where the healthcare system will change. Also, there seems to somewhat of a disagreement between how mainstream economists and how Professor Friedman sees the topic of macroeconomics as a whole. We will explore this later on this blog post, but let's first talk about Wolfers' point of view.

Let's first look at what Wolfers and the Romers have to offer for the conversation over Sanders' economic plan. The Wolfers article goes into a recent short article of what Professor David and Christina Romer have written and explains that Friedman's plan is out of whack based on their point of view. I must admit that it is completely feasible for a bunch of center-left Democratic star economists, which include Paul Krugman, to fully denounce what someone from a (more-or-less) a Post-Keynesian perspective would have. They all focused on the demand-induced part of Sanders' plan. They find it incredulous that the plan would be in Wolfers' words, "an economic nirvana". I have read and looked over Professor Friedman's plan and it does not look incredibly implausible, especially when you look at the CBO estimates or in its calculations. Maybe it is somewhat different than what most center-left macroeconomists such as Wolfers would consider to be credible. If you read towards the end of his short article, Justin Wolfers pointed out that Gerald Friedman's long and careful analysis as one that is more or less the perspective of the Post-Keynesian macroeconomists from the tradition of Joan Robinson. Let's look into this historical phenomenon where generally liberal economists divulge tremendously.

If you look back into history, John Maynard Keynes truly changed the way many in the economics arena had seen economics. He argued that the mainstream neo-classical models mostly in the field of macroeconomics to be mostly wrong and his particular analysis of how the world of economics works to be right. Of course this does not come with its controversy in the world of economics as many traditional neoclassical economists did not view his completely "heretical views" very well. Then fast-forward 10 years, two top MIT economists, Paul Samuelson and Robert Solow, created a somewhat combination of Keynes' works with the earlier neoclassical economists into somewhat of a paradigm shift between the two competing schools of economic thought into the neo-classical synthesis. This is when Joan Robinson and others at the Department of Economics in Cambridge, of which Keynes last taught before his death, argued in the Cambridge capital controversy about certain components of their competing ideologies especially about the unrealistic assumptions component to their mathematical models. The Post-Keynesian school, of which Joan Robinson is famous for, argued based primarily on the Keynesian tradition, while the other somewhat Keynesian argued based on a moderate fusion of the two competing schools. This led to a long ideological battle that has also included an entire generation of economists in the "new classical tradition" that in Robert Lucas wanted to "bury Keynesianism" and also attacked the earlier mentioned unrealistic assumptions part in their math modeling. The Wolfers' article and Krugman's numerous articles explain this battle, but it is generally between the dominant faction of Keynesians and those like Friedman, which are in the more left-leaning Robinson faction of the Keynesians.

While I don't necessarily agree completely with Friedman's observations on Sanders' economic plan for the country, Professor Gerald Friedman and Bernie Sanders' economic plan is especially important in that it's exposing the general public to more of Keynes' economic thoughts. While Keynesianism might not be the solution to some of problems in the models that some in the New Classical school of thought ran into during the Great Recession, it should form the basis in any academic and policy discussion to correcting the country's trajectory towards an entrenched oligarchy and a mass of working poor.

A Short Analysis of Donald Trump's Economic Proposals

As Donald Trump edges towards winning the Republican Party nomination for President of the United States, I will break down Trump's economic proposals that he has for the United States. Three of the main proposals he has proposed will actually be very detrimental for the country. These three include deporting millions of Americans, large tariffs on goods with China, Japan and Mexico and an extremely unfriendly foreign policy towards the Middle East.

By deporting millions of undocumented Americans from Latin American countries such as Mexico, he might cause a large shortfall in minimum wage and other low wage positions in agriculture, in food preparation and in perhaps janitorial roles. There aren't enough people in the country that will comfortably fill those positions as those have been mostly filled by new immigrants, some of them illegal. While some of the domestic unemployed might be able to fill in some of these positions, they won't be able to cover all of these positions as some of the more vulnerable local populations might not want to even take these jobs, without a modest wage increase. While it might decrease unemployment among the working population, this might create a large void in the service economy and that might result in prices going up.

The second and most damaging of his economic proposals would be to slap large tariffs on goods with countries that provide some of the products that are consumed in this country such as China, Japan, Mexico, South Korea and elsewhere. His rhetoric contends that this will help to revitalize America's flagging domestic manufacturing industry, but this does not seem like it will be the case. The best case scenario will cause some of these offshore jobs to move to even lower income countries such as Indonesia, Vietnam and India and cause prices for goods and services to raise accordingly to the rate of tariffs. You would have to slap prohibitive tariffs to move the low-wage manufacturing jobs back to the country. Prices on everyday goods such as t-shirts might even double as a result of this import tariff. This will surely increase the costs of living in the United States and it will hit the working people even harder. The cheaper goods that the country has been receiving (some of the cheapest in the world) has been caused by low tariffs to low to middle income countries such as China, Mexico and cheap higher-quality goods from countries such as South Korea. This has been a boon for the working people to consume more cheaper products and has helped to move some of those same people into more value-added service positions that contribute to the less manufacturing intensive some of the economy. This has also been environmentally feasible for the country as heavy manufacturing plants has caused massive population problems for a country such as China. Let's also not talk about a massive trade war with China or a tariff war with the European Union...

The third and last of his proposals has been quite damaging for America's image and relations with countries in the Middle East as to outlaw all Muslims coming into the country might cause more hostility towards the United States in those Middle Eastern states. This might be an ideal solution for Trump but this might cause a breakdown in commerce between the United States and the Middle East. While relations with certain states in the Middle East such as Iran and Syria might not improve under President Trump, relations with allies such as Turkey, Saudi Arabia and Egypt might be strained. While the economies of this region do not figure much to America's export economy, it might cause a strain in developing good relations with a region that is so vital to providing the oil and gas to the world's second largest economy (the United States). By promoting and causing more Muslim hostility to the United States, the country might have to spend more on its wasteful military spending that does not provide much benefit to the domestic consumption economy of the United States and further drag the federal government into the brink of bankruptcy.

From these three proposals we can see briefly that a Trump Presidency will be horrible for the country's economic well-being, along with foreign policy problems with Muslim countries due to his well documented Islamophobic comments in order to win more fear on his behalf. While relations with countries such as Russia might improve under his presidency, he might cause rough relations with manufacturing countries such as China and South Korea. This would not put the United States in the right footing as to compete with these countries on a global level with heavy tariffs damaging domestic American firms' capabilities to compete on the international level. By deporting millions of undocumented immigrants, he might also put those that might be able to work in manufacturing jobs back to their home countries. Like Trump has used his "huge" quote on many things such as his proposals and his campaign, a President Trump would cause severe economic problems in the United States. This short blog post is just a brief summary of the problems that a President Trump would have and we will find out and see if the country is smart enough to elect a President other than Donald Trump.

A List of My Favorite Books By Genre

I'm sitting in the Coop right now enjoying Professor Martha Nussbaum's exquisitely written philosophical treatise and I had a thought in my mind about some of my favorite books here in this particular post. Because of this particular thought bubble, I will now list a relatively brief list of my favorite books by genre. As the blog is mostly about my interest in Economics, I will start with my favorite Economics books, but I will include books from other subjects such as Political Science, Public Policy, Philosophy, etc.

Favorite Economics Books:

Thomas Piketty - Capital in the Twenty-First Century
Hyman Minsky - Stabilizing an Unstable Economy
David Ricardo - The Principles of Political Economy and Taxation
Karl Polanyi - The Great Transformation
Milton Friedman / Anna Schwarz- A Monetary History of the United States 1867-1960
John Von Neumann - Theory of Games and Economic Behavior
Paul Samuelson - Economics 
Ludwig Von Mises - Human Action: A Treatise on Human Behavior
John Maynard Keynes - The General Theory of Employment, Interest, and Money
Adam Smith - The Wealth of Nations

Favorite Non-Economics Books:

Wilhelm von Humboldt - The Limits of State Action
Francis Fukuyama - Political Order and Political Decay: From Industrial Revolution to the Globalization of Democracy
Richard Feynman - Feynman Lectures on Physics
John Nash - Essays on Game Theory
Confucius - The Analects 
George Orwell - 1984
John Stuart Mill - Utilitarianism
Bertrand Russell - The Problems of Philosophy
David Hume - An Enquiry Concerning the Principles of Morals
John Stuart Mill - On Liberty
John Rawls - A Theory of Justice

Interesting Seeking Alpha Article on Russia and Commodities

I have read a very interesting article on Seeking Alpha just recently in the morning. Here is the link. I agree with the opinion that low oil prices will not hurt Russia's economy in the long term as Russia is a very large country with bountiful amount of natural resources that cater towards their own socio-economic development. What's also going to be important towards the further development of their national economy will be their economic relationship with one of the most resource-hungry countries in the world (that being China). This will effectively lead towards the mitigation of the current ruble/currency crisis that has plagued Russia ever since oil prices took a nosedive. If this trend of the low prices continue, Russia will have to diversify its economy into building an economic base free of the "natural resource curse". Let's just put it this way: Russia will have to move away from its model of exporting natural resources (gas, oil, water, lumber) and towards exporting it's specialized products in military a lot more. While I agree with most of the points that the author in this article makes, I think it's more adequate to say that Russia faces troubles while their direct geopolitical and military competitor in the United States does not have similar issues.

An Interesting Article by A British Economist on Creativity And Other Thoughts on Economists and Creativity

This probably goes to many conversations that I've had with some of my friends lately. What makes the outside world work? Here's a very short and brief blog post on that same need entitled "Why Creativity Needs Economists and Economists Need Creativity". In his short blog post, it goes through what is necessary for graduates in Economics to apply creativity to whatever they do. I think this is perhaps more relevant to those who are involved in Econ Research as well. What do I mean by this? I refer it to how Paul Samuelson deeply embedded rigorous mathematical principles into his honorable introduction of Keynesian Economics into the deeply flawed neoclassical framework of which economists in the past had operated.

By reading both the Bernanke interpretations of the Great Depression and Paul Samuelson's landmark dissertation, we can observe that the field itself need to be constantly changed if it will be effective in its prediction of financial crises. I have read several papers that mentioned that these uncommon and misplaced financial crises could be predicted, but I beg to differ. Maybe researchers can deviate from the established framework that was proven wrong during the latest Great Recession of 2008 and try to think creatively of new models and new solutions. I believe that these words could be applied to economic theory on economic and financial crises as a whole. This is a mystery that I'm constantly thinking of ways to resolve this as I've explored all corners of current economic publications. I've certainly found some interesting arguments, but I think a concrete answer has to yet to be fully found on the most important theoretical questions. Do we need to throw out many of the current foundations of macroeconomics in order to found something new and fresh? Or can we browse through the explanations of many theorists such as Keynes, Samuelson, Lucas, Barro, etc? I think there needs to be something new and original to be introduced into this equation and hopefully something will come into fruition in the coming years.

My Reading List for January and February of 2016 and a Personal Update

As announced in my last post, I have purchased a shelf-full of books at the Harvard Book Store Warehouse Sale, which means they will mostly populate my reading list for the month of January and February. I have decided to lump these two reading lists together as I have spent most of last month and this month busy with reading countless articles that pertain to my long-term personal interests.

This is where the personal update comes into hand: I have decided to spend the next couple of months researching a long term personal interest of mine and to put together something concrete over the first couple months of the year. If you are curious, writing a couple of serious articles is one of my resolutions for the exciting new year of 2016! I will try to summarize what I will write in these particular articles in maybe several couple brief blog posts. I will also try to post more of what I haven't posted onto this blog as some related information is on my old computer that is currently disabled. Let's not delay it anymore and I will be posting new information onto this blog in the coming month!

Jan, Feb 2016 Reading List:

Econ-Related Books:
1. The Selected Works of Joseph Stiglitz, Volume I and Volume II (Will definitely not finish at the end of this month as I will be reading and re-reading them in the coming months and years!)
2. Ronald Coase, Ning Wang - How China Became Capitalist
3. Jean Tirole - The Theory of Industrial Organization (Just like the Stiglitz Book: I will be actively referencing this book throughout the coming months and years and will probably also reference other similar books)

Non-Econ Related Books:
1. Martha Nussbaum - Frontiers of Justice: Disability, Nationality, Species Membership (The Tanner Lectures on Human Values)
2. Martha Nussbaum - Not for Profit: Why Democracy Needs the Humanities

I will also be catching up on previous backlogs of books that I have posted here and in other places and try to finish them as well.