Daniel Kahneman on Confidence

Daniel Kahneman, 2002 Nobel Prize winner, is out with a new book and it is excerpted in the New York Times - this could be a good read for students in a unit on behavioral economics.  Also, in the New York Times in a interview with Kahneman from when he won the prize. 

Greek Deal - How the Contagion Could Spread

Well, it looks like Europe got its act together at the last minute and put off the ugly end to the Greek crisis - at least for now.  Although, the details that make up the deal have yet to be released or have opened up a new bag of questions.  Below is a good graphic from the New York Times shows how the Greek crisis could affect the world - good teaching tool. 

Recession is Over - Incomes Going Down

The New York Times has a good article on how average incomes have gone down in the aftermath of the recession.  This is one of the reasons why "it still feels like a recession".  It also means that it will be a slow recovery (since low incomes will result in lower consumption).  The graph below says it all.

Projection of Time Until Full Employment

The graph below shows the different projections of how long it will take to return to full employment under different amount of monthly job creation.  As Mark Thoma said, "no need to hold on to your hats, it looks like it will be a slow ride."



Multiple Equilibria in Crisis

Greg Ip has a good post reporting on the idea that in a currency crisis (or other similar crisis) there can be multiple point of equilibria.  As he says:

Courtesy of the Bank Credit Analyst, it nicely illustrates the dilemma facing euro zone peripheral sovereigns. In normal times (upper part of the chart), demand for Italian bonds is downward sloping. As prices fall (yields rise), demand rises. But at a certain point, higher yields call into question Italy’s solvency, and demand actually falls. In this zone of vulnerability, the demand curve is upward sloping. Only once Italian bond prices fall into distressed territory, presumably at much lower deficits and levels of GDP, does the curve resume its normal shape.

The BCA writes:


The possibility of speculative attacks blurs the distinction between liquidity and solvency. As a result, there may not be any single unique “equilibrium” for debt yields. Rather, debt markets may be subject to multiple equilibria … In such an environment, shifts in financing costs can lead to a wide variation in the possible trajectories of debt-to-GDP ratios over time, which serves to exacerbate market anxiety. Faced with such multiple equilibria, it is a central bank’s responsibility to ensure that the “good” (i.e. low yield) equilibrium is reached. The fact that the ECB has yet to grasp this lesson is bewildering.

Comparing the Great Depression to Now - How Now is Worse

David Leonhardt has a good piece comparing the Great Depression to the current economic problems in terms of how the shadow of the Depression American industry was building the base for the economic growth in subsequent decades.  He notes that this does not seem to be happening now.  His basic point of how were have a cyclical downturn built on a structural growth downturn is a troubling idea.  The article also has this good graph of job creation looking back over sixty years.

Bernanke on the Couch

The New York Times Dealbook blog has a video clip of Bernanke on his psychiatrist's couch.

Robert Solow on Nasar's "Grand Pursuit"

Robert Solow casts a critical eye on Sylvia Nasar's book of economic history, The Grand Pursuit, and points out its short falls in explaining the economic ideas in economic history.