Quantum Economics

Philosophical comparison of social development such as economics to quantum mechanics-related particles can be seen incidental or confusing but conceptional say humans have changed the perception of certainty and simplicity of uncertainty and complexity as well, so that the process of understanding the perception of the economy as a philosophical principle must change also has changed the way in Physics and Mathematics, because of "uncertainty" for the particle information in a "position" and "momentum" going away again in the social sciences in which the "uncertainty" of socio-economic development and the process as reported by the Government or private groups are even more unclear and subjective. The similarity of the old "certain" and "simplified" approach in which particle physics is taken as a static measure and both are used in Philosophy and Economics in which the process is simplified and made measurable or at least easily incorporated into the evaluation system, so there is no difference between the approach in Physics and Economics in terms of thinking and conventionalizing to simplify the process and what the science seems irreversible is the complex reality conventionalizing constant. More "uncertainty" should go in the same way and apply for Philosophy and Economics as well.

The similarities between science in Physics and Economics runs even beyond the growing perception of the simplicity of complexity into the reality of the realization of the "uncertainty" and "uncertainty" when in the same manner as in physics is to realize that the "particle" is in constant change there is no way to measured without error. It's not just because of lack of human technology but because of many and the reality of changing each other and even more so because the reality is very unpredictable and unknown. Same way in Philosophy and Economics can easily realize that the social economic process is not static but "uncertainty" and "uncertainty" the ever-changing socio-economic reality is not measured in any way because they think that by using some statistical measurement may give us a realistic picture of the situation economy is not realistic and not sure but even beyond the process of social and economic structures are so varied and changes that they are more like particles in quantum mechanics and then to a theoretical explanation of economic statistics or philosophical conception of evaluation principles, such as Marx or John Lodge or anyone else. Reality is constantly changing and the uncertainty that comes out of it may be only theoretically be explained by several theories and philosophical concepts but could not provide an adequate description of socio-economic realities of a changing and uncertain where the process is mainly economic in most no unpredictable and uncertain. Ideology of the few economic structures such as communism or capitalism, or socialism are conventionalized by philosophical concepts are far from explaining the socio-economic process but more likely they are to provide some "security" in reality a very diverse and unsafe; this ideological work somehow the world's political and ideological confrontation of the cold war when one is better then others, but it does not work in an open free world where philosophical concepts do not find the application or support.

To measure the statistical or however a realistic picture of the socio-economic process is uncertain and tools developed to measure these indicators are inadequate and limited, but even they are developed to perfection they still will not be able to measure this process because the process itself is uncertain and can not be measured.

The processes in the socio-economics can only be given "parameter expansion or contraction" so that they can develop in "certain areas" for certain "extend" and then modified or adjusted, it can be done by collecting energy to disperse so instead of a big wave : energy accumulated and how to create big waves are examples of Real Estate market appreciation: a positive for the economy to expand the provision of additional capital and equity that extend individual capitalization and investment but as we see in the current crisis flows expanded more positive appreciation of the process with economic impact during the appreciation has literally hit the consequences of destroying the existing economic structure; accumulation of negative energy because of respect for not spread to the entire economy so that the inevitable ripple effects, in terms of a possible way to minimize the over-appreciation is not to not allow or even limit the appreciation like all but by establishing the "parameters" which will ring a bell for over-appreciation or even better, they will automatically trigger the "prevention valve" to limit the appreciation-over or under-appreciated as well.

The difference between the economy to adjust is called capitalism or socialism where the government uses a very political tool to adjust these fluctuations, as well as of Fiscal and Monetary policy and talk about distribution and redistribution of wealth or restrict or expand business activities may not necessarily be the right tool to manage the economy "parameters" required for "over expansion" or "under the expansion" does not occur.

The "Iquanta" quanta, but this is not a part of particles or energy, or something else in the physical aspect but the quantity is measured philosophical "energy" or just a "word" that can be considered as an abstraction or "imaginary particle" also, it will depend on the point of view: while some may believe that the processes of socio-economics has its own energy or not, for me as believers do not have any meaning because the most important thing is going is to set the parameters; The same principle would apply to "plasma Iglued" and several others terminology taken from Quantum Mechanics that would be used in this study.

This study tried to challenge the status quo of Philosophy and Economics ideologically motivated by the uncertainty principle from the economic development process, to show that there are similarities between Physics and Quantum Mechanics Iquantum Economics Socio-Economic Philosophy, to set some "parameters" socio-economic processes in could eventually be used in practical economy to restrict "big wave" of economic recession or at least explain the "parameters."

To show that even by nature unpredictable and impossible to put into a philosophical structure that can explain all socio-economic processes, although there are several parameters that can limit the occurrence of big waves and does little to indicate that the economic downturn and the recession did not even control is not a part or tool somehow "free market development", but the adjustment is the result of occasional violence to build energy to a large wave and in the same time some of this energy can be incorporated into the parameter / diversified so as to prevent large waves from such a frequent or more violent.

Is iquanta it? - It's not part of the particle was probably part of the energy or part of the conceptional particles to explain certain philosophical concepts which particles move, contract and expand in a limited predictability. This is influenced by socio-economic processes and development. That accumulation of energy is largely based on socio-economic events and fluctuations.

What igloued plasma - power that connects iquantas and other parts of the constantly changing and moving events and processes in the socio-economic process, we can imagine this terminology as a mirror of socio-economic processes so that they can be found? change them and explain their changes, vibration, energy accumulation and make adjustments to the socio-economic violence. Physical quantity constructed by iquantas and other parts of the rapidly changing and moving, where the plasma igloued connecting this section and give them the meaning of events, the "energy" building with an acceleration iquantas and other parts of the current economic and development into a big wave of violence: similar to monster waves in the ocean. Well, like establish common quality is the concentration of wave energy between neighbors, but this observation is not the principle. In the real development of the economy are several factors that influence positively toward the expansion and progress within a certain time and the same factors may have a negative effect in a different time or mostly when passing through a positive level construct: (eg appreciation of real estate containing a positive effect on economic development as far as when market prices are not supported by income area ratio, or until withdrawn and reinvested capital gains do not carry the flow of support; cheerful or to be compared with other business activities or if it etc). many different conditions so if a particular wave energy related physical quantities of real estate is built that may encourage a big wave and these waves may also rocked many other parts of the real economy.

Thus came the difference between quantum mechanics and economics iquantum: uncertainty regarding the supervision of iphysical not only the ever-changing reality but also the way of observation in quantum mechanics when the main problem is to measure and observe in iquantum economy is putting the parameters after analyzing the information when the difference between the amount iphysical and observations larger then the final vector can be started from the same or even totally opposite points, so the relevance between and among these vectors based on their direction, length and angle of their projection.

Economics Is Not Just About Money

There is a general public misconception that the economy is about money and finance. This is simply not true. Although there are certainly elements present in the Study of Monetary Economics, Economic discipline is about the best use of resources of all kinds, whether they be land, labor, capital, time, technology, equipment, natural resources, or whatever. Supply and demand conditions are familiar to us all.

Economics is a logical discipline that attempts to both identify the problem or the current state of affairs, and sometimes even cure them. While discipline is considered as non-exact science for about two centuries, the advent of modern technology and computer models & basic historical information has now been significantly enhance the ability of economists to estimate how many variables can and will affect business, industry, government, and everyday citizens and organizations.

Only a few people who understand that Economics and Economic Studies include labor, time, and the use of far more than money. (Although the basic money and banking is an economic concept, the use of micro-finance is about money, not economics.) If a plant manager or supervisor of the warehouse is to decide how many workers are needed, and what to do, this is Labor Economics.

The decision how much product to produce and what price must be sold to maximize profits is Business Economics. Economics also job creation, such as business investment, government spending, export & import (trade) and consumer consumption. Once again, supply and demand issues. Often what we call "management" really Economy.

In most cases, the economy is efficiency. Idea of Economic Studies is to use their best resources may be used, or optimized. Thus, the boundaries of discipline in some form of engineering; Managerial Economics course not. Economists and managers using the Economy has many tools at their disposal for accuracy. This includes calculus, computers, databases, models, advanced mathematics, theory, graphs, charts, tables, and basic supply and demand functions. This is quite an arsenal!

Next time you hear the word "Economy," remember that it's not just about cash, or finance. Money is a small part of the subject. Think about the allocation of resources. Think efficiency. Then you will think like an economist!

Spain: how to mess with the labor market

Spain has long been a puzzle because of its abnormally high employment rate, in particular among the young. But things seem to have rectified themselves somewhat since Spain got more integrated into the European market, which unemployment rates comparable to France. But the last recession turned out to be a disaster, with the unemployment rate increasing by 11% points, compared to 2% points in France. What is wrong with Spain? For one, there was a spectacular drop in activity in th construction sector, which initially accounted for a sixth of GDP and was basically divided by six.

Samuel Bentolila, Pierre Cahuc, Juan Dolado and Thomas Le Barbanchon claim that there is also a serious issue with labor market institutions. While both France and Spain have extensive employment protection legislation, and severance pay is formally higher in France, Spain requires, for example, administrative approval for collective dismissals of over 10% of the workforce. Such approval can only be obtained by collective bargaining and much higher severance pay. While severance pay is usually not problematic (it is accounted for in wages), it is the red-tape associated with this and the hoops firms that firms need to go through to dismiss that become economically relevant, because these are transfers that captured by a third party: administration. This makes it then very costly to hire someone, given expected firing costs, and especially so in uncertain times.

Using a search and matching model, Bentolila, Cahuc, Dolado and Le Barbanchon find that the unemployment gap between France and Spain would have been reduced by 45% had Spain adopted French labor market institutions. And I surmise it would be much more with other laws, as France has quite high employment protection in international comparison. No wonder that Spain recently scrapped much of its employment protection regulation in the midst of a deep recession, which may sound counter-intuitive at first. But if you want firms to hire in a recession, they should not have to commit for long-term employment.

Towards better growth accounting

There are some literatures that I find very frustrating, and the empirical growth literature is among them. The initial idea to take a production function to see the contribution of labor and capital to the average growth rate of an economy and then also to compare this way differences in income levels was initially very instructive, in particular because it highlighted how total factor productivity was important. It went all downhill from there, as people started wildly regressing whatever they could get their hands on across countries, mostly with poor data. TFP can be influenced by many things, and there is no way one can identify anything without applying some structure, even with good data.

Gino Gancia, Andreas Müller and Fabrizio Zilibotti use a model to distinguish the contributions of factors (labor, human capital and physical capital), barriers to technology adoptions and technology inadequate for local conditions. The results are interesting, too. Removing these barriers would increase per capita income by 24% in the OECD and 36% elsewhere. And given that a model was estimated, it can be used for various scenario analyses. For example, they find that globalization increases skill premia and thus world income disparities, but this can be reversed by coupling trade liberalization with a reinforcement of intellectual property rights. These latter results are somewhat counterintuitive, but are justified by the fact that with stronger IP rights, there can be a transfer of technology to the South.

Should food prices influence monetary policy?

Central banks care about inflation, but not about the inflation people care about. Because energy prices are volatile, they are not included in the price index a central bank typically looks at, because including it would made the indicator less informative. At they also include food prices, because those fluctuate a lot as well, in particular because of seasons. That can make sense for a rich country, where food represents only a small portion of the budget. For poorer countries, excluding food is more controversial.

Luis Catão and Roberto Chang note that world food prices seem to cause worldwide inflation, and this should have implications for inflation in small open economies that take food prices as given. The question is then whether central banks should react to such terms of trade shocks. For a net food importer, Catão and Chang find that including food in the price index relevant to the central bank is welfare enhancing. The reason is that if food has a larger weight domestically than in the rest of the world, the real exchange rate and the terms of trade can move in opposite directions following a food price shocks. The welfare improvement comes from a change in the correlations in aggregates leading to smoother consumption, but it possibly results in higher inflation and higher volatility of output and employment. It is thus not obvious including food prices would then be an easy sell.

Do professional sports teams belong on the stock market?

Professional sports clubs exist to win, but this often requires money. Different models have developed in this regard. The US model is private ownership of clubs within a cartel, where private ownership is meant to be a single person, or a small group of people. The European model is broad membership with few benefactors who do not own the club, and clubs operate within an open league system (promotion and relegation based mostly on sport results). But over the last two decades a good number of European clubs went public and are now listed on stock markets. This highlights a change of priorities, profits over sport results, although the two are clearly correlated. But how well do these clubs fare?

Michel Aglietta, Wladimir Andreff and Bastien Drut note that the performance of sports stock is rather weak, and thus has not attracted institutional investors as was probably hoped for. This weak performance is not that surprising, I suppose many hold such stock to frame it above the TV set. It may also be due, as the authors argue, to the fact that sports clubs have poor governance. So, maybe the next step is to run them like a business where the objective is to maximize shareholder value, and make sport results only a means to generate these profits.

Journal editors are poor selectors of best papers

Journal editors are thought to be exceptional scholars who are capable of identifying the best papers and in particular those that will have the largest impact, typically measured by citation counts. But editors have considerable help: first peer reviewers make reports that should be informative, second authors to some extend self-select in the submission process, they would not send a paper where it has no chance of getting published. But it is difficult to evaluate whether an editor is doing a good job. However, when editors choose to put as lead paper the one they consider the best in the issue, one can in retrospect check whether these papers are cited the most. As I reported earlier, editors turn out not to be particularly good.

What about those papers that get the "best article of the year" award? Tom Coupé does a similar exercise and finds that they are more cited than the median article, and slightly more than the runner-up articles, but they are rarely the most cited in a year. You just cannot trust editors, even though they are even supported by a committee for such awards.

The psychology of the equity risk premium

There is a huge literature on the equity risk premium that probably could sustain its own journal, trying to document it or explain it. But somehow, people keep finding new ways to look at the equity risk premium, so it sometimes worth checking out what they last came up with.

Georges Prat looks at the equity risk premium at various horizons and studies how and why they evolve differently. The study highlights that there is a time-varying term structure of equity risk premia, and that it depends on interest rates (expectedly) and a hidden state variable that the author attributes to psychological factors. Now, it is easy to blame changes in tastes for anything one cannot explain, but this is hardly convincing, here or elsewhere. The study uses the S&P 500 index and Treasury bonds and calculates premia at one and ten year horizons. If taste shocks make that risk tolerance of some people changes, they may get completely out of particular maturities. Looking at big aggregates is then not appropriate to measure how risk-averse they are. For example, if I find that long term risk is getting too high for me, for example because I am approaching retirement, I will get out of the blue chip stocks I was holding and into ten-year government bonds. Blue chips will then be priced by a different demand. There is thus a composition effect, that is, the risk tolerance of those holding these stocks is different, but it is because these are different people. That is not psychological, this is demographic.

Are wars rational?

There are few circumstances where wars are globally welfare enhancing. One can imagine that wars can be individually optimizing, for example when we consider the old land-taking or enslaving war. But casual empiricism indicates that quite often fools engage in wars, like minnows tickling obviously overpowering giants (Irak, North Korea) or others who have little objective chance of winning (South Ossetia, Caprivi, Falklands). Is it because some belligerent are poorly informed or even irrational?

Clara Ponsati and Santiago Sanchez-Pages use Markov games with fully rational players to characterize wars, and even chronic wars. A country can lay a claim on another country, leading to bargaining or war, and it can only end if one surrenders. The problem is that parties do not know their relative strengths and can only learn about them by engaging in war. Add a dose of optimism, and you have a recipe for war. Were one to add some political economy (or populism) to this model, outcomes would be really depressing and worrisome. But I still have some faith in humanity.

Interest-only mortgages and house price bubbles

Bubbles are annoying. First because they are difficult to identify, second because they indicate that prices do not reveal the "proper" information, and third because they lead to misallocation of real resources and much hardship when they burst, which they inevitably do. You want to prevent bubbles from happening, but again they are really difficult to identify, especially in real time.

Gady Barlevy and Jonas Fisher may have figured out a clever way of identifying bubbles in house prices. Using some theory, they find that interest-only mortgages should only be used if there is a bubble. Turning to data, they find that the use of such mortgages is rather sparse through time and space, and when it is used, it corresponds pretty closely to episodes where we suspect bubbles could be happening. In particular, interest-only mortgages mere mostly used in areas with inelastic housing supply, which are more prone to bubbles.

Is there really no selection bias in laboratory experiments?

Whenever you read about a survey or an experiment, the first worry one should have is whether there is some selection bias in the studied example. As I have argued before, experimental economics is almost exclusively on a sample from a minority of the world population. But assuming that we are only interested in this minority (and unfortunately we are), is there still some selection bias.

Blair Cleave, Nikos Nikiforakis and Robert Slonim did some experiments in the classroom with over 1000 students, and then invited them for more experiments in a laboratory setting. Those that followed the experiment did not have different characteristics, which is reassuring. However, this only partially alleviates my worries. Indeed, students are only a small minority of the current population, one that is more educated, coming from a richer background, younger, etc. I am looking forward to a broader study...

Time for an agricultural revolution in Africa?

When you think about income differences across the world, Africa is really depressing. It seems nothing is making a lasting impact in terms of policy for it to catch up with the others, and seeing how Asia managed to transform itself makes you wonder what is fundamentally wrong. While one may think this has to do with misguided policies, so much has been tried that something ought to have stuck. But no. One thing that helped Asia is that evolution in rice brought an agricultural revolution that freed human resources for manufacturing, so could such a revolution also happen in Africa?

Donald Larson, Keijiro Otsuka, Kei Kajisa, Jonna Estudillo and Aliou Diagne claim that several areas in Africa are suitable for rice, but local diets and tastes are too diverse for rice to have the success it had in Asia. The productivity of other crops needs to improve as well. So it does not look like there is a ready-made solution that will kick-start the agricultural revolution soon, despite some very localized successes.

That said, why insist of improving agriculture on a continent that is visibly not appropriate for this? Much like telecommunications in Africa jumped over landlines directly to mobile telephony, why not bypass agricultural development straight to manufacturing? One argument against this is the large transportation costs that make local agriculture essential and manufacturing away from the ports unprofitable. But why insist on keeping the population on the countryside? Why not develop coastal cities and take advantage from returns to scale there, like Singapore and Hong Kong did, and

An analysis of the oldest auction in history

Homo economicus is not a recent phenomenon. Not only that, he design market mechanisms early in history that appear to be very subtle. The oldest known auction was designed by Illyria in Babylonic times. This is a marriage markets in its true sense, as it is about auctioning off potential brides. All eligible girls are assembled, and an auctioneer offers them to the highest bidders, starting with the one expected to fetch the highest price. Proceeds are used to sell the least attractive brides to the poorest men assembled.

Michael Baye, Dan Kovenock and Casper de Vries analysis this auction in a two-player environment and claim that there is something paradoxical. Assume complete information, which means the auctioneer will always earn zero profit. Then is appears players can earn a much larger surplus by playing a mixed strategy than with a pure strategy. And there a continuum of these mixed strategies, and the expected payoff for both players is arbitrarily high, but finite. The problem is the solution procedure used to solve for symmetric mixed strategies breaks down here, because it selects strategies that are not part of Nash equilibria. We should learn from that to be very careful when applying standard theorems. A similar reasoning applies to incomplete information where the bidders do not know how much the other player values the potential brides.

There is no recent literature on this auction. However, it was mentioned on the back cover of the August 2006 issue of the Journal of Political Economy. I suspect this is what inspired the authors to work on this. They could have mentioned this and acknowledged the submitter, Costas Meghir.

Markets under-value fuel economy for new cars

Is it worth it to buy a fuel efficient car? If you ask an economist, he will look at the fuel consumption, the cost of gasoline, and calculate the cost benefit of a fuel efficient car, probably also factoring in a resale value and a discount rate. But a non-economist customer?

David Greene says the literature is really unclear, as customers seem to be under-valuing and over-valuing fuel efficiency depending on how you look at the data. Surveys seem to indicate that car buyers consider a very short horizon for the payback, 1.5 to 2.5 years. That makes it very difficult for fuel efficient cars, hence the need for subsidies, or better taxes on the inefficient cars (see why). But this provides little theoretical insight where car buyers differ from the economist I described above. Greene thinks this has to do with risk aversion about future gasoline prices, or loss aversion (being afraid of having taken a poor decision). But clearly, this requires more research.

Having said this, I am puzzled at how little hybrid cars have been adopted in Europe, in particular compared to the United States. The cost of European gasoline is very significantly higher, and the environmental consciousness is also more pronounced. Is it because the alternatives to hybrid cars, the small fuel efficient sedans, are much better than in the US?

Are payday loans any good?

Payday loans are small loans that are offered with very short terms, usually until the next payday. But because they imply exorbitant interest rates, into the hundreds of oercent in annualized rates, they are severely criticized. Yes, the payday loan industry is thriving, obviously responding to a strong demand. So it would appear that payday loans are welfare improving, or people would not use them, just as much as credit card loans are welfare improving. But many people worry that payday loans, more so than credit card loans, lead borrowers into a vicious cycle of financial dependence. So, should they be regulated out of existence or not?

John Caskey writes that the issue is really about separating two kinds of people. There are first those who fully understand the terms and the cost of the loan, but happen to face a very short term liquidity crisis, having exhausted or having no access to other forms of credit. This can happen to the best people, and happened to me. For them, the payday loan is valuable and clearly welfare enhancing as it fills some market incompleteness. And there are other people who are tempted by the easy cash and immediately face long term issues in paying the loan back. The policy maker would want to prevent the second category to get such loans, but one may ask whether the payday loan industry would want to grant them business as well: they are clearly much riskier. The loaner would want to find a way to discriminate, in particular because this allows to reduce the interest rate on the good borrowers and thus attract more of their business.

But the data indicates the second category is worryingly big. Only one sixth of payday customers borrow once a year or less. And it is estimated 5% of the population would use those loans if they were freely available in every US state, like it is currently the case in some. That would be worrisome. But when Oregon regulated the payday loan industry away, people felt more constrained. And states with payday loans have significantly fewer checks bouncing, although they also have more bankruptcy filings. The paper offers plenty of other examples from the empirical literature, but overall, there is no clear sense whether payday loans are welfare improving or not. Maybe better discrimination of customers is the way to go.

Another year of blogging

How quickly that year passed, and I am once more amazed at the quantity I have posted. One hardly notices when you write a couple of paragraphs each day, but it sure accumulates: 271 posts during the year, 40 more than the previous year, reflecting the lack of vacation time...

Should I continue? I still like doing it, even though it takes much more time to write even two paragraphs about a paper than simply reading it. While I do not have credible statistics to back it up, I have the impression that I have a rather loyal (and mostly silent) readership. There are over 700 subscribers on the Google Reader I use, probably more elsewhere and through various relays. I only wish there were more discussions, although I understand it can be difficult to participate.

Comments averaged at two a post, a rather modest number. But some posts attracted a lively discussion. Here are the ones with the most comments:

1. Why criticize modern macro when you do not follow modern macro?
   
2. The economics of compartments
   
3. On the dangers of penny auctions, an example
   
4. Is democracy really worth it?
   
5. About this obsession with lawns
   
6. Doing Calvo all wrong
   
7. About the state of US higher education
   
8. Smoking bans versus tobacco taxation

And which were the most popular posts of the year?

1. The economics of compartments
   
2. Worker overconfidence and unemployment duration
   
3. What is an MBA worth? (from 2008!)
   
4. How to increase employment, and at what cost (from 2009)
   
5. On the dangers of penny auctions, an example
   
6. Is the US a third world country?
   
7. Posting calories in restaurants is Pareto improving
   
8. The AEA is missing a golden opportunity
   
9. The problem with experimental economics: people are weird
   
10. Household size heterogeneity and the representative agent

Anyway, here come another year of blogging on research in Economics.