Feeling deflated

THE Bank of Japan (BoJ) must feel as if it has a bad case of déjà vu. Three years after the central bank thought it had ended deflation, it has returned. And to fight it, the bank has had to resurrect a policy tool it tried to bury long ago—quantitative easing. If that is not bad enough, the BoJ once again has to deal with a government breathing hotly down its neck.

Full article here

how to increase employment

Becker's view here.

Krugman's view here











(Via Mankiw.)

does the paradox of choice truly exist?

The psychologist Barry Schwartz’s book The Paradox of Choice (here’s his TED talk on the topic) was, for me at least, very persuasive. It made a compelling if counterintuitive argument: even though many people (economists especially) argue that more choice is almost always a good thing, Schwartz argued that too much choice is actually a bad thing, causing decision paralysis and unhappiness. That’s a simplistic rendering of Schwartz’s argument — there’s an obvious difference between having a lot of political candidates to choose from in an election and having a lot of flavors of jam to choose from in a supermarket — but that’s the gist.

Freakonomics' article here.

...a more fundamental objection to the “choice is bad” thesis is that the psychological effect may not actually exist at all. It is hard to find much evidence that retailers are ferociously simplifying their offerings in an effort to boost sales. Starbucks boasts about its “87,000 drink combinations”; supermarkets are packed with options. This suggests that “choice demotivates” is not a universal human truth, but an effect that emerges under special circumstances.

 Tim Harford's piece here.

after Dubai: who's next?

Like overstretched American homeowners, governments and companies across the globe are groaning under the weight of debts that, some fear, might never be fully paid back.

As Dubai, that one-time wonderland in the desert, struggles to pay its bills, a troubling question hangs over the financial world: Is this latest financial crisis an isolated event, or a harbinger of still more debt shocks?

Full story here.

In Job Hunt, College Degree Can’t Close Racial Gap

Johnny R. Williams, 30, would appear to be an unlikely person to have to fret about the impact of race on his job search, with companies like JPMorgan Chase and an M.B.A. from the University of Chicago on his résumé.

But after graduating from business school last year and not having much success garnering interviews, he decided to retool his résumé, scrubbing it of any details that might tip off his skin color. His membership, for instance, in the African-American business students association? Deleted.

“If they’re going to X me,” Mr. Williams said, “I’d like to at least get in the door first.”

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Is the economic science responsible for the financial crisis? (in Dutch and English)

The failure of academic finance can be considered one of the symbols of the financial crisis. Two important underlying reasons why academic finance models systematically fail to account for real-world phenomena follow directly from two conventions: (a) treating economics not as a 'true' social science (but as a branch of applied mathematics inspired by the methodology of classical physics); and (b) using economic models as if the empirical content of economic theories is not very low. Failure to understand and appreciate the inherent weaknesses of these 'conventions' had fatal consequences for the use and interpretation of key academic finance concepts and models by market practitioners and policymakers. Theoretical constructs such as the efficient markets hypothesis, rational expectations, and market completeness were too often treated as intellectual dogmas instead of (parts of) falsifiable hypotheses. The situation of capture via dominant intellectual dogmas of policymakers, investors, and business managers was made worse by sins of omission - the failure of academics to communicate the limitations of their models and to warn against (potential) misuses of their research - and sins of commission - introducing (often implicitly) ideological or biased features in research programs Hence, the deeper problem with finance concepts such as the 'efficient markets hypothesis' and 'ratex theory' is not that they are based on assumptions that are considered as not being 'realistic'. The real issue at stake with academic finance is not a quarrel about the validity of the assumption of rational behavior but the inherent semantical insufficiency of economic theories that implies a low empirical content (and a high degree of specification uncertainty). This perspective makes the scientific approach advocated by Friedman and others less straightforward. In addition, there is wide-spread failure to incorporate the key implications of economics as a social science. As response to these 'weaknesses' and challenges, five suggested principles or guidelines for future research programmes are outlined. 

 Abstract Hans J Blommestein's working paper

Vaak worden theoretische concepten als intellectuele dogma’s gehanteerd door zowel wetenschappers als gebruikers. Onderzoekers zijn hiervoor deels verantwoordelijk, aangezien ze onvoldoende wijzen op de beperkingen en zwakheden van hun theorieën en modellen. Ook waarschuwen ze te weinig voor het potentiële misbruik van hun werk. Deze houding wordt versterkt door de, veelal impliciete, ideologische elementen in veel onderzoekprogramma’s.

Hans Blommestein, Me Judice