Deflation Is the New Inflation

The deflation scare in Japan is all over the news these days. It seems that deflation is in, inflation is out.

Not only are prices decreasing by record rates, but unemployment is falling as well!  Boy, I am so close to packing up my stuff and moving to Japan. Economists don't share my enthusiasm, however. Articles such as this one in Business Week for instance, elaborate on the present danger facing most central banks in developed countries in the Northern hemisphere. Never in my wildest dreams, have I ever pictured falling prices as a phenomenon to be dreaded, feared and fixed. Not that I don't see the very clear point economic theorists make, but I can't seem to be able to turn my back on my inflationary childhood and adolescence.

Just to clarify what I mean, take the Soviet satellites with the traumatic communist and post-communist experiences with their "governments in transition," an endless and seemingly futile history of transition consisting mostly of fighting inflation. Even while residing in the United States, and especially during the recent recession, the Obama administration stimulus plan caused even more worries about hyperinflation and stagflation. Yet, printing money didn't even cause the much-publicized anticipated inflation, let alone help fight deflation. When merely pumping money into the economy doesn't quite have the predicted results, isn't it time to turn to other panaceas?

Convergence, Divergence

"Economic Convergence shows that if two countries at different stages of development (e.g. one rich and one poor) move towards the same steady state level of capital per worker (k*), due to decreasing returns to K, the richer country is projected to grow at a much slower rate than does the poor one, which is at an initial stage of development where any additional increase in k produces much higher returns and thus, a much higher y."

Legend: K = capital; L = labor
              k = capital per worker (K/L)
              k* = steady state level of capital per worker
              Y = output
              y = output per worker (Y/L)
This is just the first sentence I wrote for a problem set. I'm quite proud of its length... and somewhat scared I may be turning into one of those people... You know who you are!

The Coordinates of Happy

Today's class on economic development briefly mentioned the Happy Planet Index and after I got over the initial fit of giggles that shook me, I decided to actually pay attention and keep an open mind to just how economists dare to approach this uncanny task of measuring and classifying happiness.
After a couple of graphs and the professor's ramblings trying to explain the graphs to an audience already with one foot out the door, I finally discovered the main point to years of studying happiness. Or at least the main point for me. Apparently, data show that over time happiness stays fairly constant where an overall increase in a country's level of income or total GDP is observed, ceteris paribus. This means that if the distribution of income remains fairly constant as well, people are not any more likely to feel happier than before. Moreover, what struck me as incredibly narcissistic, yet true, an individual is only likely to feel happier if he or she is better off than the people around him. As the saying goes in most Balkan countries, "I'm doing well only if my neighbor does poorly."

So, if being happy is so dependent on one's well-being relative to others, how can we ever strive for equality? I am strongly averse to talks of utopian politics and societies, but I do believe that there must be some universally established minimal level of subsistence. This debate goes back to ancient times when philosophers from different eras argued about the nature of man. Are we born good and the environment corrupts us or do we have evil and egotism written across our hearts (but we spend a lifetime trying to better ourselves and save our souls)?

Whether we believe one or the other, we must not forget that economists are not trying to make people happy. Redistribution of income can have positive effects on total welfare by raising living standards, but negative effects on individual happiness. Above all, welfare is not a perfect measure of the effectiveness of economic policies, and sadly, it is rarely used as such a barometer.

What seems to make people happy is a groundwork of working domestic policies - today's optimistic prospects for investment in tomorrow's stable returns.

People Respond to Incentives

I just turned 22 a couple of days ago. Thus far, things have been going according to plan - I am at the final stretch, my last semester of college. As I mentally prepare for what comes next - the real world in huge doses - I find it as perplexing, anxiety-filled, exciting, and stressful as the next guy. I can no longer avoid the Big Question reserved especially for this time. Yet, I find it difficult to follow a concrete direction and complete even this short post, let alone to sort out my thoughts, hopes, and aspirations. They say a man is as big as his dreams. Well, how's a girl to dream big in today's world economy? Baby steps.
First, do a little research by your junior year and find out which and if graduate school is the most appropriate choice at this point. Preparing for LSAT/GRE/GMAT exams is not a thing to dismiss even in your freshman year. Trust me, this is not the SATs!
Second, if, like me and most of my friends, you decide to postpone grad school for a year or so and to enter the vast pool of college grads looking for jobs, do not watch the movie "Postgrad." Yes, I repeat, do not! It will not change anything - it will not inspire you nor will it disappoint you, because it is a work of fiction and only you can write your own screenplay. I am proud to have followed my own advice. Ha.
Third, after making the unwavering choice to enter the job market, you will realize that this decision will not make your life any easier. Instead, a myriad of questions begging to be answered will flood your tiny, know-it-all head. For instance, you may ask yourself where your ideal place to work might be. Why yes, there are many subpoints to this question such as:
a) Industry: If, like me, you have made the curious choice of studying economics and even more curiously you are not regretting it, would you like to become a financial analyst? Or perhaps go into consulting? Accounting? These areas seem to be the most lucrative option in terms of financial compensation. Let's suppose for a moment that again, like me, for some unexplainable reason you're more of a macro-thinker, you like looking at the big picture and especially to feel useful. So, if development economics is calling your name, should you perhaps join an NGO, IMF or the World Bank? What if you are sent to a land far, far away to do some hands-on research?
b)Location: It's all about location! Here's where we tie in the big L. Should you consider only the local job market - staying close to home and family, old friends OR close to new friends, new love and new home at the university? Furthermore, for those who have combined both of those locations in one (again... yours truly), why shouldn't you look farther - into new, undiscovered or vaguely familiar places you'd like to explore more? In this day and age, thinking globally is not only encouraged, it is a must.

The popular economic motto "People Respond to Incentives" remains strong and valid. I can't help but wonder, however, what sort of incentives there are for those of us - almost postgrads, but not quite there yet - who will devote the following 4-5 months (I sincerely hope no more than that!) boosting up and sending our curriculum vita to all corners of the world in the almost futile hope of landing the perfect job. I don't mean to sound depressed or disillusioned. I just wish the world had a little more faith in the potential and capabilities of my generation. I'm not saying that we are better than any other generation (quite the opposite, I am certain the next will surpass us), but we surely have much to offer once given the chance. The only thing standing in our way is our own insecurities. We lack confidence where our mothers and fathers had the green light and the carte blanche to go forward almost carefree. We are now burdened by undergraduate student loans, mortgage loans, insurance payments, graduate student loans, credit card fees. And squeezed in between the walls of these responsibilities, we are encouraged to remain hopeful, sunny and dancing on the streets.

Has the US economy failed us? Have we failed ourselves by living on credit for too long and now the system we took advantage of for so long is coming back to bite us in the buttocks?

Cake or Death?

Mmmmm... cake, chocolate cake.... 

It's 12:03PM. Stomach rumbling, eyes closing. Didn't have my morning coffee but had an extra early start at 3:30AM (silly jet lag!). Confined between the 4 walls in the office and everyone else going on lunch breaks... My colleagues better bring my "surprise" birthday cake in an hour or so!

Ah, expectations... The wait and anticipation make me so dependent that I was reminded of something Bill Easterly wrote about vicious cycles. A developing country sits around and waits while foreign aid donors keep dumping aid, forgiving loans. I must admit that I'm becoming quite vicious myself.

Hunger - for money, or for food in my case - can drive one to do despicable deeds. And what's worse, they will all be justified in his or her mind.

And yes, I finally had my cake and ate it too.

Bentley's Second Law of Economics

The law states, "The only thing more dangerous than an economist is an amateur economist."

Similarly, the only thing more dangerous than taking a photo of Chinese military officers in Tibet is taking a photo of Chinese military officers doing the "Heil Hitler" and posting the photo online.

I like to live on the edge... (teehee)