Revised Q2 GDP

The revised number of the US GDP growth (3.3%) surprises a lot of ecnomists.
I am not surprised at all. It says one thing: we were not in Ression, at least not yet!! I had heard a lot of people saying we were in the worst recession after Great Depression over the past year. But it did not happen.
I was skeptical about it from the beginning. Why? Because I believe in this survey.
We should not expect a recession would come so frequently and seriously like several decades ago. Also don't underestimate the ability of Fed amid many negative shocks. The Fed had learned several hard lessons from the past history.

Rajan Had Told You So

Economist Rajan had warned us about the problem of financial system three years ago in Jackson Holes Meeting. This time he comes back to the meeting and everyone listens.

Snapshot of the US Economy Equality

The Recent Report of the US Economy Equality from Census Bureau.

Real median household income in the United States climbed 1.3 percent between 2006 and 2007, reaching $50,233.
Meanwhile, the nation’s official poverty rate in 2007 was 12.5 percent, not statistically different from 2006. There were 37.3 million people in poverty in 2007, up from 36.5 million in 2006. The number of people without health insurance coverage declined from 47 million (15.8 percent) in 2006 to 45.7 million (15.3 percent) in 2007.

What Tax Rate is Fair?

Macroblog raises this big issue.

Treasure Island of Economics and Finance

Videos of the Nobel Laureate Meetings at Lindau, Germany, in August, 2008

Stiglitz (2001): The Global Financial Crisis: Lessons for Policy and Implications for Economic Theory
Scholes (1997): The Role of Liquidity and Risk Transfer Services in the Economy
Yunus (2006): Social Business is the Solution

Note: Peace Price

Myerson (2007): Leadership, Trust, and Power: Dynamic Moral Hazard in High Office
Solow (1987): Low-wage Work in Europe and America
Kydland (2004): From Dynamic Inconsistency to Models with People
Mundell (1999): The Currency and Exchange Rates
Phelps (2006): The Good Life Needs an Economy of Dynamism
Granger (2003): Evaluation of Global Econometric Models
Fogel (1993): Forecasting Changes in the Cost of Health Care: 2000-2040
Aumann (2005): Rule Rationality vs. Act Rationality
Nash (1994): Ideal Money and Asymptotically Ideal Money

Note: Remember the movie "A Beautiful Mind"? Here is the real guy.

Panel Discussion: “Systemic Risks in Financial Markets”, Profs. Scholes, Stiglitz, Yunus and McFadden

How to Invest $10,000 and Sleep Well?

A former student emailed me a question about investment:

Hello Professor Yu,

I'm not sure if you remember, but I took your Econ 202 last spring. I was hoping I could get a little advice from you. I have around $10,000 that I can invest in something. I would like to invest the money since I am still young, it should have more time to compound that way. I don't really know what type of investment would be a wise choice at this age and with that much money. If you could give me a little advice on what to consider I would really appreciate it. Thank you for your help and time. Have a good semester.

[Name Withheld]

Below is my response:

I am glad to hear from you.
It is good to have some extra money to invest for the future.
If you could hold the money for at least five years (the longer, the better) , I would suggest you to put the money in some kind of stock index fund. There are two reasons for this.
First, it has the lowest management fee compared to mutual funds. Second, it is well diversified compared to single stocks.
Never ever buy a single stock because it is too risky. You might buy a stock like Google when you are lucky or Enron (or Bear Stearns) when you are not.
In the long run, stock index will give you a higher return than bond or money market index.
If you ask me what kind of stock index fund, I will say the simplest form: S&P 500 in the US. For example, Vanguard 500 Index Fund is a good one.
I put my 401K money in this kind of funds. By the way, NOW is a good time to buy stock index fund since stock market price is not high.
Also, I won’t give the advise for those who cannot hold their investment for at least five years. So if you only want to do the short-run speculation, ignore what I said above. I am not certain for this kind of investment.

Oil Speculations Dominate!?

A Few Speculators Dominate Vast Market for Oil Trading from Washington Post.

A Conversation with Austan Goolsbee

Charlie Rose interviews with Austan Goolsbee, Obama's economic advisor.

Top 50 Banks

Vault shows this top 50 prestigious commercial and investment banks employers.
It is odd that Bear Stearns ranks 16! I though the firm has already disappeared.

A Tale of Two Monetary Policies

The difference of monetary policy between the US and Europe explained by Martin Fledstein.

New Evidence of Permanent Income Hypothesis

Martin Feldstein wrote a good piece in WSJ.
But it seems he was one of those who asked for tax rebate. See here.

Democracy for China?

Two artiles for this issue.
By Arthur Kroeber.
By Robert Reich.
Let's see the future of China.

Funny Election Videos

Celebrity or President?
John McCain's Ad here.
And then Paris Hilton's here, which is hilarious.

The Era of Financial Triumphalism

I agree with what Ken Rogoff said about the financial freedom and regulation.

Structural Break of Human Capital Accumulation

This article by David Brooks from New York Times saying that there is a structural stop of the US human capital accumulation since the 1970s. And it is the most important issue facing the US. But it still did not explain what was going on since the 1970s.

The Debt Trap

New York Times showed a video about the finance tragedy of Diane McLeod.
Here is a comment later on from NYT.

The story tells us that Americans should save more.

Regional Business Cycles

James Hamilton's lecture for his paper: Regional Business Cycles.

Help Homeless

An interesting conversation:

So, I was talking to this little girl, Catherine, the daughter of some friends, and she said she wanted to be President someday.

Both of her parents, liberal Democrats, were standing there with us and I asked Catherine, 'If you were President, what would be the first thing you would do?'

Catherine replied, 'I would help all the homeless people.'

'Wow, what a worthy goal you have there, Catherine.' I told her, 'you don't have to wait until you're President. You can start now by coming over to my house and cleaning up all the dog poop in my back yard and I will pay you $5 dollars. Then we can go over to the grocery store where the homeless guy hangs out, and you can help by giving him the $5 dollars.'

Catherine (who was about 5) thought that over for a second, while her mom looked at me seething, and Catherine replied, 'Why doesn't the homeless guy come over and clean up the dog poop and you can just pay him the $5 dollars?'

'Ah', I said, 'Welcome to the Republican Party.'

Again, Econ Major is Good!

The most lucrative college majors from Forbes.
Economics is number 2 out of 20 majors.

The Milton Friedman Institute

Today I read a funny report.
I can understand the controversy between conservative economics department and the generally liberal humanities and social sciences.
But I was shocked to read something like this:
"For many people who travel around the world, the university has had a pretty bad reputation that is tied to the Chicago School and economic principles that Milton Friedman advocated," said Yali Amit, a U. of C. statistics and computer science professor.

I have no idea that people in computer science have problems with Friedman!!??!!

Do you want to name it the Karl Marx Institute?
To avoid dispute, why don't we just call it the Nonpartisian Moderate Institute?

Rising Gas Price and Outsourcing

Rising gas price might have this impact on outsourcing.

Blinder Says that There Are Two Kinds of Bubbles

Two bubbles; two paths from NYT.

Spence Comission Report: A Watershed of Economic Development!?

I think that Spence Report on economic growth and development has a very important implication.
Here are some responses:
1. From Martin Wolf.
2. From Dani Rodrik.

The May Retail Sales Surprise

The news somehow challenges Permanent Income Hypothesis and Ricardian Equivalence.

Why is Economics the Largest Major in Harvard?

This article provides good answers.
I completely agree with this part: "Economics is good training for business school, law school, or a career in public policy."

A Video Interview with James Hamilton

Hamilton is an icon in time series econometrics. In this interview, he talked about a lot of insightful topics, e.g. regime switching model, monetary policy, current financial meltdown, oil price, future research, etc.

Student-Loan Market

From WSJ.

Economics Major is Good!

Econ majors earn ($52,926) more than most of other majors. Evidence is here.

Is Finance's Economic Role Ebbing?

From WSJ.

The Reason of Income Inequality and Solutions

Mankiw offers a reason.
Solution 1: See here.
Solution 2: See here.