Marginal Revolution

Funes, the Memorius

A wonderful short story by Borges, appropriate for today, and it is much shorter than you might remember.  Thanks to Alina Stefanescu for the pointer.

Against errands

Here is some wisdom for the new year to come:

Other days are eaten up by errands. And I know it's usually my fault: I let errands eat up the day, to avoid facing some hard problem.

The most dangerous form of procrastination is unacknowledged type-B procrastination, because it doesn't feel like procrastination. You're "getting things done." Just the wrong things.

Any advice about procrastination that concentrates on crossing things off your to-do list is not only incomplete, but positively misleading, if it doesn't consider the possibility that the to-do list is itself a form of type-B procrastination. In fact, possibility is too weak a word. Nearly everyone's is. Unless you're working on the biggest things you could be working on, you're type-B procrastinating, no matter how much you're getting done.

In his famous essay You and Your Research (which I recommend to anyone ambitious, no matter what they're working on), Richard Hamming suggests that you ask yourself three questions:

1. What are the most important problems in your field?
2. Are you working on one of them?
3. Why not?

Here is the full argument.  Addendum: Here is the correct link for "You and Your Research."

Don´t Think Too Much About Your Year to Come

Timothy Wilson writes:

In one study, mildly depressed college students were asked to spend eight minutes thinking about themselves or to spend the same amount of time thinking about mundane topics like "clouds forming in the sky."

People in the first group focused on the negative things in their lives and sunk into a worse mood. People in the other group actually felt better afterward, possibly because their negative self-focus was "turned off" by the distraction task...

What can we do to improve ourselves and feel happier? Numerous social psychological studies have confirmed Aristotle's observation that "We become just by the practice of just actions, self-controlled by exercising self-control, and courageous by performing acts of courage." If we are dissatisfied with some aspect of our lives, one of the best approaches is to act more like the person we want to be, rather than sitting around analyzing ourselves.

Social psychologist Daniel Batson and colleagues at the University of Kansas found that participants who were given an opportunity to do a favor for another person ended up viewing themselves as kind, considerate people - unless, that is, they were asked to reflect on why they had done the favor. People in that group tended in the end to not view themselves as being especially kind.

Here is the full story, and no I don´t have New Year´s resolutions.

Pedro Figari

He is my favorite painter from Uruguay.  Competition is stiff, but here are more images.  Here is a brief biography, and yes I am still wondering what ever happened to all the black people in Uruguay.

My macro final

1. The pessimists commonly argue that the large U.S. trade and budget deficits eventually will require a big fall in the dollar, higher real interest rates, and a general loss of confidence in dollar-denominated assets. We all know that g > r would stop this problem in its tracks. But let us say that g is not big enough relative to r. What other non-pessimistic scenarios can you outline? How valid are they?

2. What is the difference between covered and uncovered interest parity? Which are assumed by the traditional Dornbusch model of exchange rate overshooting? None, just one, or both? How do the observed failures of the expectations theory of the term structure affect the Dornbusch model? 

3. How will the aging baby boom generation affect the following and why? Savings rates, interest rates (real, nominal, short and long term), Fed policy, inflation, and investment.

4. Targeting nominal gdp involves targeting M x V, or Money times Velocity. Do open economy considerations make this a better or worse idea? Make sure your assumptions are clearly stated.

5. Write your own exam question and answer it, do not use open economy macro as your major topic since three of the questions already cover that. The quality of the question matters as much as the quality of the answer.

Some people did very well.  #2 and #4 gave people the biggest problems.

A simple public choice model of currency crises

Assume two classes of asset holders.  The first is liquidity-constrained and does not have rational expectations.  These people extrapolate from present conditions and do not understand intertemporal governmental budget constraints.  Most of their assets are held in a local currency, shall we call it the Argentine peso?  Even if they had more foresight, they cannot afford to set up foreign bank accounts.

The second class of people is wealthier.  They convert all savings into dollar-based accounts, held in Miami, as quickly as possible. 

When the fiscal position of the government deteriorates and a currency collapse comes, both the nominal and real value of the domestic currency will fall.  In Argentina the peso went from 1 to 1 -- the former pegged rate -- to 3 to 1, the current floating rate.  Prices are a bit higher, but the latter class of investor is much wealthier today.  At home, their overseas dollar holdings are worth more than twice as much as before.  They have greater purchasing power over the local economy, especially over non-tradeables.

The country as a whole is poorer, if only because the currency collapse disrupts  economic activity.  The first class of asset holders is much poorer and many are wiped out altogether.  Non-tradeables are oriented ever more toward wealthy, sophisticated demanders.  Culture will boom, non-shippable foods will improve in quality, and perhaps the women will become more beautiful.  Relatively wealthy vacationers will find that this place is just right for them.  Yet the streets will have more litter and there will be more beggars than before.

This is no conspiracy theory, but it does explain why we do not see greater domestic pressures for fiscal stability.

The economics of napping

Michael at www.2blowhards.com writes:

• Some see napping as a reflection of a failing. If you were doing everything right, you wouldn't need to nap. This stems from the American conviction that a person ought to be bursting with dynamism 24/7, and if he isn't then something is dreadfully wrong.

• Some see napping as an aspect of a larger problem that needs to to be addressed and licked: "Today, in the news -- fatigue, and how to overcome it."

• To some of a scientific bent, napping is strange -- a peculiarity to be investigated. We aren't perfect robots: Let's try to explain why not!

• To others, napping is a productivity question. A person who naps isn't wasting time. No, he's doing what needs to be done to be even more productive than he'd otherwise be.

• And then there's the "it's good for you," napping-as-health crowd.

Here is his paean to napping.  Here in Buenos Aires they use naps as a means of abolishing ordinary sleep.  As they are waking up to go out, I wish to go to bed.  A status game (positive-sum?) among the youth leads going-out times to stretch later and later into the night.  Many clubs don´t get going until 2 a.m.  (How do one-night stands work when you are out until 7 a.m. or so?)  The last time I was here I would commonly eat my dinner at the end of their lunch hour.

Addendum: Daniel Drezner has a siesta update from Spain.

Borges and the Eternal Orangutans

He [Rotkopf] joked with the driver, asking if he was a porteño, a native of Buenos Aires, and if he too believed that Buenos Aires, that "simulation", really was a European city, and if, like all porteños, he considered himself to be "that physiological impossibility", a subequatorial Briton.  The driver was not amused.  By the look in his eyes when we got out of the car, it seemed to me that he too would gladly have seized the first opportunity to kill the German.

That is from Borges and the Eternal Orangutans, by Luis Fernando Verissimo, highly recommended.  How many excellent yet philosophical mysteries can you finish in an hour?

Constitutional Torture

Liberals are claiming that President Bush has violated constitutional restrictions on torture and spying on Americans.  Don't they understand that the constitution is a living document that must be reinterpreted in light of new events and understandings?  An originalist reading of the constitution would throw us back into the primitive past when the minimum wage was unconstitutional.  Fortunately, conservatives know that constitutional interpretation must change with the times and never more so than now.  We live in a different world.  The Founding Fathers may have been great in their time but they did not face the problems that we face today and we should not be bound by their 18th century ideas of liberty and executive tyranny.

Brad DeLong reviews Ben Friedman

Read it here.