Archive for February 13th, 2008

Good interviews of Tullock and Buchanan

February 13, 2008

I just came across  2 superb interviews of Gordon Tullock and James Buchanan.

For the uninitiated they together led to the formation of a very interesting stream of Economics – Public Choice Theory

In particular, it studies the behavior of voters, politicians, and government officials as (mostly) self-interested agents and their interactions in the social system either as such or under alternative constitutional rules.

Buchanan given another view on migration:

If you have an area where high-income receivers concentrate, you have a higher fiscal capacity. That fiscal capacity is a valuable resource and will create rent-seeking. People will trying to get that resource one way or the other, including immigration. It is very much like the medieval peasants putting their sheep on the commons pasture. It is better than the open range, and if you let them have open access they will, in fact, put too many sheep on the pasture and waste the value that the pasture has. We want to limit the exploitation of the fiscal capacity of the richer regions by keeping down the rate of immigration to a level that would be meaningful and efficient. One way to do that is to have a scheme of equalization which essential bribes people to stay in the poorer regions.

Cost-push vs demand-pull inflation

February 13, 2008

It is really great to see old macroeconomic concepts keep coming up. This is what makes the old concepts a classic.

If we look at the entire debate on inflation today- i.e. Why are Central Banks lowering the rates when inflation expectations (and in some regions actual inflation) are expected to be elevated?

It comes down to the old idea of cost push vs demand pull inflation (see the difference here).

Basically, inflation is expected to be high because of higher costs (cost-push) as prices of both, food/commodities and fuel are expected to rise in future (see this note from IMF chief economist, Simon Johnson for details). As both are used as intermediate goods for many items there is expected to be a rise in inflation across the board.

However, the Central Bankers (in US, UK and Canada) expect the demand to slow down in their regions and this would lead to lower prices across the board. They expect the negative of the demand-pull inflation to be stronger than the cost push inflation. And that is the reason they have lowered their rates.

So, which one will win? As of now, the probability of occurring of higher food and fuel prices seems to be higher than weakening demand. We are still not sure whether the talk about slowing economy is true or is too much of a hype. Again, forecasting is difficult and only time will tell what happens.

Assorted Links

February 13, 2008

1. WSJ Blog points that economists are divided on effect on fiscal stimulus

2. Econbowser summarises the White House Economic Report to the President.

3. Econbrowser discusses Project lifeline

4. Ajay Shah on improving competition in the exchange industry

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