The Orange Path

The Tories need a rethink on the minimum wage - Telegraph

You can’t persuade, cajole or incentivise people off welfare benefits into jobs that don’t exist for the simple reason that minimum wage legislation makes them illegal.

via www.telegraph.co.uk

Learning to Love Insider Trading - WSJ.com

Here's a hot tip: Want to keep companies honest, make the markets work more efficiently and encourage investors to diversify? Let insiders buy and sell, argues Donald J. Boudreaux.

via online.wsj.com

New Video: Minimum Wage Brings Minimum Jobs

John Stossel's Take, 08/31/2009

Minimum wage laws actually kill off the entry-level jobs most needed by poor people to break into the job market.

Interview with George Selgin (Richmond Fed)

By Stephen Slivinski, Winter 2009

My own ideal version of free banking would have no special requirements for note issuance. Private banks would be able to issue their own notes on the same basis as they create demand deposits. They would also be free to open branches and invest in all kinds of securities. Finally, there wouldn’t be any sort of implicit or explicit government guarantees, like deposit insurance.

Three cheers for short-sellers

Felix Salmon, Reuters, Aug 7th 2009

Is there any downside to short-selling? Not really: the authors say that “there is no evidence that short selling exacerbates a downward price spiral when the misconduct is publicly revealed”.

Yes, the market is efficient

Chris Dillow, Stumbling and Mumbling, August 6th 2009

Figures from Trustnet show that, over the last five years, only a minority of unit trusts in the UK all companies sector (91 of 254) have out-performed an index-tracker fund.
This means that the key prediction of the EMH is correct - it is incredibly hard to beat the market.

John Authers: Why sitting tight is sometimes right

Financial Times, Feb 15th 2008

Further, there are good arguments based on “churning”. It costs money every time you make a trade. That eats away at your investment. Leaving things as is can be very cheap. So a bias towards inactivity makes economic sense.

Behavioural finance provides a more profound reason. Humans suffer from an activity bias. Inactivity embarrasses us. When there are problems, our instinct is not just to stand there but to do something.

3. The fiscal stimulus is going to do wonders [?]

michele boldrin, 24 Febbraio 2009

First: it is a fantasy that the economic profession at large finds the "stimulus" and the "bank bailout" plans sensible and adequate. Most economists I know oppose them: fiscal stimuli either do not work or work too slowly, and bailing out bad managers is never a good idea.

Fiscal stimuli

Anthony J. Evans, The Filter^, Feb 2009
A roundup of contemporary crtiicismts of Obama's $700bn spending plans

According to the Chicago Tribune:John Cochrane, a professor at the University of Chicago Booth School of Business, says that among academics over the last 30 years, the idea of fiscal stimulus has been discredited and in graduate courses, it is "taught only for its fallacies."

New York University economist Thomas Sargent agrees: "The calculations that I have seen supporting the stimulus package are back-of-the-envelope ones that ignore what we have learned in the last 60 years of macroeconomic research."

Greg Mankiw provides a list of more economists that are skeptical of a spending stimulus:

Alberto Alesina, Robert Barro, Gary Becker, John Cochrane, Eugene Fama, Robert Lucas, Greg Mankiw, Kevin Murphy, Thomas Sargent, Harald Uhlig, and Luigi Zingales

Mike Moffatt has some excellent posts on this topic. In "Why is so little known about modern fiscal stimulus" he cites Mark Thoma:

Monetary policy could be implemented faster, with less distortions, it could be reversed quickly, it was in the hands of independent, public minded shepherds, there wasn't any dimension, or so it was thought, upon which fiscal policy would be better than monetary policy, and vast amounts of research were devoted to getting the monetary policy component of stabilization policy correct. In the process, fiscal policy was dismissed as irrelevant, at least as a stabilization tool, and largely ignored by researchers (fiscal policy was still used to try to promote growth - that's the whole supply-side argument about cutting taxes, but not as a stabilization tool). That's not to say government spending and taxes weren't included in models and analyzed theoretically, or even empirically, but to the extent that happened, the questions were not focused on how fiscal policy could be used as a stabilization tool -- the models were not constructed to answer this question.

Also see "What are the key ingredients of fiscal stimulus" and "Fiscal stimulus - unlikely to work in the real world"

Here are some more links to take a look at:

• Political affiliations of modern macroeconomists
• Keynes as Public Works Skeptic
• A 40-Year Wish List:You won't believe what's in that stimulus bill

Update (19/2/09): Mario Rizzo tries to explain "Why Obama’s Stimulus Won’t Work and What Might" - you can view a video of his remarks here.

Will The Real Christina Romer Please Stand Up?

David Henderson, Forbes.com 7th Jan 2009

The Romers write, "[C]ountercyclical fiscal policy is not achieving its intended purpose." Why? "[I]t is difficult for fiscal policy to respond quickly to economic developments"...The best thing the federal government could do now is avoid the phony Obama tax cut and not increase spending at all. It's time for the Senate Republicans to step up.