Times.konradturski.com – Political and Economic Commentary by a Postgrad in London

This is an equation, courtesy of a certain Robert H. Topel, published in the American Economic Review. What is x, subscript i, superscript jm? What does theta stand for? What on earth is big F? Sadly, Robert H. Topel refrains from explaining any of that. The exception is dotted z superscript jm, which is defined, of course, as the cost-sharing weighted average of five aforementioned skill groups.

Dear economists: purposefully making your papers absolutely unintelligible to all but the uninitiated just to prove how handy you are with the Greek alphabet and how proficient you are with Word’s Equation Editor, is not acceptable. Please revise your work, this time properly defining all variables, subscripts, and randomly-placed dots. Thank you.

The BBC reports today that Britain’s lovable Chancellor of the Exchequer, Alistair Darling, is politely asking everyone to restrain themselves to 2% wage increases this year, to fight inflation.

But John Nash and his “friends” proved this does not work, forty years ago! And then they all got Nobel Prizes. How will Chancellor Darling overcome incentived cheating, collective action problems, and human rationality to prevent a catastrophic descent into Nash Equilibrium hell?

Raw Unadulterated Charisma.

In Das Kapital, Marx and Engels (the latter is omitted in spell-checker, a curious and indicative omission) argue that the value of a good or service is measured by the amount of human labour put into it. This was a(incorrect) refinement of the capitalist conception of value, which argued that value stems from the intersection of supply and demand.

Today we’ll take a look at whether Marxism can tell us something interest about the value of digital goods. It is the correct question to ask because, by and large, Neoclassical economics cannot explain the market for digital goods like the tunes you buy on iTunes. The reason lies in the supply curve, which is upward sloping because of the assumption that supplier will supply additional goods when the price is higher; this is because if, and only if, the price rises, will more supply hit the streets. The problem with this is that when the goods you are selling can be (re)produced by holding CTRL and pressing V, the per unit costs approach zero at the limit, and your supply curve takes on a whimsical shape. (more…)

Did you know that “your best friend’s dad from 1994″ is now the Chairman of the Federal Reserve?  And that the worldwide loan system has collapsed because people unqualified to get loans are also unable to repay those loans, once they’ve received them? Fed First Secretary “Uncle Ben” Bernanke knows these things! But in case you haven’t been paying attention to all these exciting events, here is a recap of this week’s events in the ever-unfolding Subprime crisis:

• On Tuesday, the WP, NYT, and your local newspaper reported that Timothy Geithner, president of the Federal Reserve Bank of New York, is proposing increased Fed oversight of the financial system. I said the same thing three days earlier, but in his defence it’s not exactly a new idea.
• On Thursday, the WSJ reported that economists are more confident than ever that Bernanke can navigate the thin line between inflation and growth by not overshooting rate cuts in the wake of aggressive “fiscal stimulation” by President Bush and the credit crunch.

About a week ago I heard a clever little witticism regarding the fundamental difference between buyer and sellers. It went something like this: if you are buyer, it doesn’t matter what language you speak: every seller will work their hardest to understand you. If you are a seller, you wont sell a thing unless you speak the local language.

This is the common experience of many travelers. However, there is a built-in dilemma in this observation.

In economic theory, and practice, there is a fundamental equivalence between suppliers and demanders; a buyer is thus a seller by any other name. I will offer two examples to illustrate this point. The first is that of the stock market: in order to operate in it, you need to wear both hats; there are no pre-ordained buyers or sellers. Simply to function in the stock market, you must, in sequence, be both a buyer and seller.

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Tony Hayward, chief executive of BP and Prime Minister Blair’s Right Honourable Twin, has put together a great article for the FT today about the spike in oil prices. Clearly objectivity is not to be expected here, but he makes many constructive points. This observation is particularly insightful, if it is in fact true:

Myth number two is that the world is running out of hydrocarbons. Not so. The world has ample resources, with more than 40 years of proven oil reserves, 60 years of natural gas and 130 years of coal. The problems in bringing on new production are not so much below ground as above it, and not geological but political.

Hayward points out that, despite the fact that Russia has supplied oil to fuel the Indian and Chinese demand shock “almost barrel for barrel,” “resource nationalism is on the rise” and is, according to the BP executive, the chief culprit for rising gas prices.

His assessment for why gas prices are rising is as follows:

1.) Economic fundamentals of supply and demand

2.) Political supply constraints and the uncertainty variable

3.) Financial manipulation “on the margins”