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From Freakonomics to Financial Crisis:

From Freakonomics to Financial Crisis:. What can Chicago Economists tell us, and what they can’t. Ming-Jen Lin, Professor, Department of Economics, National Taiwan University Ph.D. 02’, U of Chicago. Let’s Do Some Quiz First!. 以下何者最有助於改善印度農村婦女的生活？

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From Freakonomics to Financial Crisis:

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  1. From Freakonomics to Financial Crisis: What can Chicago Economists tell us, and what they can’t. Ming-Jen Lin, Professor, Department of Economics, National Taiwan University Ph.D. 02’, U of Chicago

  2. Let’s Do Some Quiz First! 以下何者最有助於改善印度農村婦女的生活？ (1)印度政府禁止夫家索取嫁妝和視性別選擇墮胎(2)有線電視和衛星電視的普及 (3)付錢鼓勵婦女不要墮掉女胎 (4)專門針對印度市場設計製造的保險套 下列哪一個不是WEGO motel 折價卷上印的折價時段? (1)下午1點到5點(2)晚上5點到7點(3)早上7點到12點(4)星期日 下列何者對阻止溫室效應最具成效？ (1)看不願面對的真相(2)碳排放量的總限量與交易制度(3)火山爆發(4)植樹 大學低學費可以讓窮人家的小孩有翻身的機會，促進階級流動與社會公平正義

  3. 怪咖如何把經濟學界搞的天翻地覆？The legend of Steve Levitt • Traditional Economics is about consumption, interest rate, or GDP, • Image of traditional economist: boring, speak Mars Language (aka math). • Example: • http://blogs.wsj.com/digits/2009/05/20/t-mobile-brings-catherine-zeta-jones-back/tab/article/

  4. In fact, freakonomics has started already • Beauty matters?Why? • Beauty is Symmetry, (Whoops, it is skin deep) • But it is deeper: Beautiful people are healthier (so it is not skin deep). • So cosmetic surgery is actually messing up with nature’s selection process. • How big is the effect? • In wage (Hammermash), election(駱明慶),or even teaching evaluation!

  5. Then here comes Steve ! And all is Bright! (芝大經濟系教授, (#2 seller at Amazon) 2004 Clark Medal)

  6. In Freakonomics, we saw • Abortion reduces Crime • Teachers, Sumo Wrestlers, and Real Estate Agents • are all Cheaters. • Drug dealers still live with their mom.

  7. Gang leader for a day: Venkedesh

  8. Can Economics explain everything?

  9. Yes we (almost) can! • Our ultimate weapon: incentive-- something that induces a person to act, i.e. the prospect of a reward or punishment. Rational people respond to incentives because they make decisions by comparing costs and benefits • Ex: higher gas prices, higher sales of “hybrid” cars. Higher cigarette taxes, teen smoking falls.

  10. 為什麼一顆腎要等30年? • 沒有誘因 • 善心捐贈 P=0 • Excess demand • Iran • 流浪教師也一樣

  11. In the past 45 years, we have successfully expanded the scope of economics,e.q. to: invaded other disciplineviva Economic imperialism ! Commander- in- chiefCommander in Navy Seal!

  12. What’s in SuperFreakonomics?

  13. exBeing a Woman ain’t easy • When there are global warming(I am talking about 16 centry)-blame the old, women or widow!(Witch) • Missing women: More than 100 million women are missing! • Why: Discrimination (female infanside, lack of Medicine and education…)

  14. Discrimination against women is our major suspect Courtercy of Josh Angrist

  15. Ex: India: ”May you be the mother of hundred sons”, ”500 Rubis now, save 50,000 Rubis later” • Even for Harvard graduates: • 有工作的女生比男生薪水少30%(Katz & Gordan, p58, but I think this is wrong!)

  16. What is the best way to improve women’s status? • 教育? • 政令宣導? • 叫男人要愛老婆? • At least in India….

  17. Watch Plywood soap opera!

  18. Oster and Jenson(2010) QJE • Introduction of cable television is associated with signicant decreases in • (1)the reported acceptability of domestic violence towards women (2) son preference, (3) increases in women's autonomy and decreases in fertility.

  19. (C)Prostitutes • P & Q are determined by Demand and Supply ! • 建築師(or 大學教授) 與sex worker 的薪水比較?Supply and demand • Superfreakonomics provides three ways to look at the this topic: historical data, current days survey, and 深度訪談。 • 當性工作者的成本: 羞恥心，風險較高， 無法轉行當太太。

  20. Historical data: Chicago in 1910 • Report from the vice commission: • Everleigh sisters 退休時， 存了約現金幣值2200萬美金!

  21. Everleigh Club: 當年高級招待所 • 顧客包含：商業鉅子，政治人物，運動員，藝人，以及反賣淫人士! • 老闆 Everleigh 姊妹對員工 提供健康飲食，醫療照護，才藝教育。 • 小姐們迷人，注重衛生，值得信賴， 也能與客人騷文弄詩，引經據典。 • 入場費250美元，香檳一瓶370美元， 服務1250美元。

  22. Case Study: Allyin Chicago • 一開始$300/hr，每周工作30小時後來每周工作15小時，價格一路調高到$500 美元---反而更搶手!年收入超過20萬。 • Price –insensitive • 而且工作內容也有很大的改變: 每天有好幾個”一小時” 約會，和只有兩個三小時的約會，內容完全不同。 • 這跟咖啡在星巴克賣和在SEVEN賣家差很大一樣bundling…

  23. 為什麼百年前的妓女賺得多?

  24. Basically, we study how intensive changes people’s behavior • This can be applied to macroeconomics, too! • Let’s take the financial crisis as an example

  25. The Financial Crisis 2008-2009 • Trigger by the Great American Housing Bubble: in summer 2006, the housing price were twice as high as they had been in Jan 2000.

  26. Why the bubble? • (1)stock market crash 2001: Greenspan lower the interest rate to 0%- the loose monetary policy pop up asset (housing) price • Greenspan’s testimony: late 2004 “a severe distortion in housing price is mostly unlikely”, Sep 2008 he admitted he failed to anticipate the looming housing and mortgage lending crisis.

  27. Why the bubble? • (2)The One to Blame? Loan-Backed Securities(有貸款作為抵押的證劵) • Assets created by pooling individual loans and selling shares in the pool (a process called securitization,資產證劵化) • Ex mortgages, student or credit card loans…. • Mortgages-back securities: thousands of individual home mortgages are pooled and shares sold, trades like bonds in the financial market.

  28. Why the bubble? • A lot of default: supply of houses increase, creating a downward spiral on housing prices—a lot of homeowners are now “underwater”(they owe more than their house is worth), b/c they buy with only minimal down payment—banks start foreclosure(回贖權的取消,擔保品房子不能取回), more default! • A lot of banks and investment companies hold a lot of housing securitization related assets! • Banks loses money! • The epidemics begin! No borrowing and lending, even between banks!

  29. Let’s blame the Wall street! But actually, according to the most recent IRS data, between 2007 and 2009, the 99th percentile income (AGI, not inflation-adjusted) fell from $410,096 to $343,927.  The 99.9th percentile income fell from $2,155,365  to $1,432,890.  During the same period, median income fell from $32,879 to $32,396.

  30. Raghuram Rajan • Fault Lines: How Hidden Fractures Still Threaten the World Economy • http://press.princeton.edu/titles/9111.html • http://www.guardian.co.uk/commentisfree/cifamerica/2011/jan/07/economics-economy • what comes around goes around, but when the "goes around" comes, the person who created“ comes around" has gone! • A seminar in summer 2008

  31. Causes output to fall in the short run 2 Short-run aggregate supply, AS A P B P2 1. A decrease in aggregate demand . . . Aggregate demand, AD AD2 Y2 Y Government’s reaction: Keynes’s story: A Contraction in AD Price Level Quantity of 0 Output

  32. Money MS2 supply, MS 1. When the Fed r P increases the money supply . . . r2 2. . . . the AD2 equilibrium interest rate Money demand falls . . . at price level P Y 3. . . . which increases the quantity of goods and services demanded at a given price level. A Monetary Injection increases AD(so does expanding fiscal policy) (b) The Aggregate-Demand Curve (a) The Money Market Price Interest Level Rate Aggregate demand, A D Quantity 0 Y Quantity 0 of Output of Money

  33. Government Reaction: improving liquidity and stimulus plan • (1)Oct 2008: 700 billion, put into the banking system • (2) Fed’s conventional practice: lower fund rate form 5.25% in Sep 2007 to 0 in Dec 2008 • (3) Fed’s unconventional practice: lent huge sum of money to a wide variety of financial institutions, purchasing private assets, including commercial papers(short term company debt) • It is necessary in such a drastic time (Mankiw: creativity of Bernanke), or the Fed is taking too much risk? • (4) Obama: expand AD • (5)台灣: 消費卷

  34. The (Un)intended Consequence • Government spending goes sky high: inflation? Or government bankrupt? • Next bubble: bond market? • 信評調降?

  35. Quantitative easing(量化寬鬆) • Starting in November 2010. The Fed purchased $600 billion of long-term government bonds, giving banks $600 billion more reserves in return. • By pumping all the money into the system, It is supposed to lower the interest rate(and bond yield rate), and stimulate the economy by pumping up investment and purchase(increase AD), with the cost of inflation. • A classical textbook inflation-unemployment(output) trade off. • If you still don’t understand: watch this

  36. Ben the Man!He can drop money in to the market!

  37. But he is still clueless !(unemployment 9.2%, growth rate 2.5%?)

  38. John Cochrane, Professor, University of Chicago

  39. Is QE2 a Savior, Inflator, or a Dud(啞彈)?

  40. FED 買債劵:red-dot line goes up. • Ben said:” Yields on 5- to 10-year nominal Treasury securities initially declined markedly as markets priced in prospective Fed purchases; these yields subsequently rose, however, as investors became more optimistic about economic growth and as traders scaled back their expectations of future securities purchases” • Notice: bond price and yield rate are negatively correlated. • So “If yields go down, the Fed is successfully stimulating the economy with QE2. And if yields go up? Well, the Fed is successfully stimulating the economy with QE2?” “此即鄉民所謂大絕!”

  41. The point is: with zero interest rate, money is exactly the same as short term government debt! • Banks do not care which one to hold! • 綠色MM 和紅色MM • But helpless does not means harmless. • If investors lose faith, and sell all the govt bond when maturity…..stagflation will break out!

  42. Is QE2 working? • The fact that QE2 is need proves QE1 is not working, QE3 is needed proves that QE2 is not working,….QED XD • John H. Cochrane : • “Mostly, it is dangerous for the Fed to claim immense power, and for us to trust that power, when it is basically helpless. If Bernanke had admitted to Congress, “there’s nothing the Fed can do. You’d better clean this mess up fast,” he might have had a much more salutary effect.”

  43. How about Greek and PIGS National Debt?

  44. Ken Roggof, March 2011

  45. Chain Reaction? • Would be a disaster • Luckily Greek has passed the IMF program • Remember S Korea in 1997 • The terms are tough, but Greek’s public sector is , 希鐵 vs 台鐵營運收入vs 人事費 • But privatization plan might be too quick • 嬰兒潮老化 社會福利與公部門的慷慨支出 讓國家無法負荷 • 老人搶劫年輕人? • 台灣呢?

  46. From financial crisis to debt crisis • Expanding monetary and fiscal policy • Increase debt! • How are the governments going to pay? • (1)raise tax, reduce spending • (2) inflation • (3) default

  47. What could the world (US) do? • Not to spend like a drunken sailor… • Actually, drunken sailor would protest! • They stop spending when they ran out of money!

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