Portugal

In all the bruhaha about Greece's approaching credit event, people have taken their eyes of Portugal. The country is going down the Greek path with high speed - austerity, a shrinking economy, more austerity, and political and social instability around the corner. Matt Lynn over at WSJ Marketplace has a lot of clever things to say why Portugal actually has LESS of a chance to pull out of the death spiral than Greece... higher private debts, for example. The one difference I see is that Portugal is not a complete banana republic -- the government actually tries to implement reforms, and get some things done. Meanwhile, the Greek clown show continues; yesterday, the Greek parliament even failed to liberalize the opening hours of pharmacies... 

what students really think

Bryan Caplan over at the Library of Economics and Liberty has some clever applications of Kahnemann's ideas to economic matters, as illustrated by the way non-economists and first-year undergrads (might) approach tricky economic questions (using a simple rule-of-thumb translation):

Target Question	Heuristic Question
Does the minimum wage help low-skill workers?	Would I be happy if employers gave low-skilled workers a raise?
What policies will make Americans richer?	What policies try to hurt people I don't like?
Do anti-firing laws help workers in the long-run?	Is it bad to be fired?
How much will Obamacare improve Americans' health per dollar spent?	How bad do I feel when I think about sick people without insurance?
What is the most efficient level of tax progressivity?	How much do I admire/envy the rich?

Needless to say, economists could argue at length about which substitutions students make when we confront them with challenging questions.  Better yet, we could try to empirically - even experimentally - triangulate their substitutions.  Whatever the specifics, though, substitution is a plausible explanation of not only the absurdity of many popular views about how the economy works, but people's certainty about these absurdities.  

more pay

equals lower quality. There is a lesson for how to balance the budgets of European countries in this interesting paper by Raymond Fisman, Nikolaj A. Harmon, Emir Kamenica, and Inger Munk (via NBER - gated):

We examine the labor supply of politicians using data on Members of the European Parliament (MEPs). We exploit the introduction of a law that equalized MEPs' salaries, which had previously differed by as much as a factor of ten. Doubling an MEP's salary increases the probability of running for reelection by 23 percentage points and increases the logarithm of the number of parties that field a candidate by 29 percent of a standard deviation. A salary increase has no discernible impact on absenteeism or shirking from legislative sessions; in contrast, non-pecuniary motives, proxied by home-country corruption, substantially impact the intensive margin of labor supply. Finally, an increase in salary lowers the quality of elected MEPs, measured by the selectivity of their undergraduate institutions.

Vatican appoints Catholics as cardinals

Apparently, the Vatican cribbed the cv's of the 22 new cardinals from their wikipedia entries.... Via BBC:

One clue was that many new cardinals were described as being "Catholic".
The Vatican says it was trying to help journalists and warned them the biographies were "unofficial".
The names of the 22 new cardinals from around the world were announced by Pope Benedict on 6 January.
The similarity between the profiles of them handed out by the Vatican and their Wikipedia entries was spotted by the Italian journalist and blogger Sandro Magister.
In the kind of language not normally used by the Vatican, a Dutch archbishop, William Jacobus Eijk was described as being "one of the most talked about religious men in the country".

Now, this couldn't come at a worse time... I have just been correcting exams, and like everywhere else, we are constantly having to remind students that plagiarism is no joke, that copying things from the net is not ok, and that a sequence of more than a few words from another source needs quotation marks and a source. This takes infallibility to a whole new level!

another year...

another job market, and I am in charge of placement. So far, our 7 candidates had 129 interviews; two  three  five days after the Chicago ASSA meetings, they already have one offer and 14  16 18   29 flyouts - fingers crossed it's just the start of a big wave of campus interviews and eventually, offers.

Another day at the fiscal dentist... without anaesthesia

What's the effect of fiscal policy during a downturn? Somewhat to the embarrassment of the profession, economists only agree that multipliers are somewhere between zero and infinity. In a bid to make at least someone happy, the new Spanish government has decided to find out just how contractionary fiscal consolidation in the middle of a crisis can be -- tax just went up, from one day to the next, by as much as 7 percentage points at the top (and the tax rises kick in pretty quickly). Then there are more spending cuts, amounting to several billion in expenditure per year. What is the likely result going to be? Here is my guess -- Spain is going to repeat some of the Greek experience. Growth - already negative as of late 2011 - will slump. The huge tax hike will hardly produce any extra revenue (and forget about the idea this is just temporary, for two years. If you have to make a mistake, make it for a long time). As in Greece, the absolute deficit will hardly fall at all as economic activity collapses even more quickly than forecast. Remember that Greek ABSOLUTE deficits in euros hardly declined in recent years, despite very large rate hikes. There may be some good economic logic behind it, too. Gautti Eggertsson of the Fed in NY and co-authors have a new paper on public debt dynamics and tax and spending multipliers. They offer a strong argument for why - in the presence of a zero bound on interest rates - raising taxes in a slump may cause particularly large contractions. In their calibration exercise, multipliers are particularly big when tax hikes and expenditure cuts are not accompanied by interest rate reductions. This continues earlier work that Gautti has done with Paul Krugman on debt and deleveraging in a crisis... I wish I could say they were wrong, but I fear they may be spot-on.