Archives for economy



Want to Win Olympic Medals? Fix Your Economy First

Steven Perlberg of Business Insider quotes a private research note by ConvergEx’s Nick Colas on the correlation between Olympic success and economic strength. “The Winter Olympics are a useful backdrop for case studies on the relationship between athletic performance and economic progress in emerging markets around the world,” writes Colas. “We’ve analyzed the medal count by country since the inaugural Winter Games in 1924, and indeed the results show that athletes rarely make it to the podium until their respective countries experience economic progress and stability.”  A few case studies from Colas’s note:

  • Japan’s Winter Olympic performance history tells a post-WWII recovery story.  The country competed in three Winter Games (1928, 1932 and 1936) before it won its first medal – silver – in 1956.  Japanese athletes didn’t earn any additional medals until the 1972 games, which the country hosted, and have been consistently making an appearance on the podium since 1980.  Japan won its first medal when it was taking off as an emerging economy and getting its economic act together following WWII.  Industrialism in the country picked up rapidly following the war, and the Olympic medal consistency coincided with the consumption boom in the 1980s. 

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Can Economic Growth Continue Forever? Of Course!

Tim Harford, who writes the Financial Times‘s  “Undercover Economist” column, has appeared on our blog many times. This guest post is part of a series adapted from his new book The Undercover Economist Strikes Back: How to Run or Ruin an Economy

Can economic growth continue forever? The internet seems to be full of physicists explaining that economists are clueless on this topic. There’s the late Albert Bartlett’s hugely popular videos – or Tom Murphy’s article “Exponential Economist Meets Finite Physicist.” The key issue is that exponential growth will eventually take you to impossible places. And by eventually, the physicists mean “sooner than we expect.”

Exponential growth is any kind of growth that compounds like interest payments. The classic example is the rice on the chessboard. According to an old story, the inventor of the game of chess was offered a reward by a delighted king. He requested a modest-sounding payment: one grain of rice on the first square of the chessboard, two on the second, four on the third, doubling each time. Yet this is actually a colossal amount—many times the annual rice production of the entire planet. Read More »



Are Recessions Like Prison Camps or Baby-sitting Co-ops?

Tim Harford, who writes the Financial Times‘s “Undercover Economist” column, has appeared on our blog many times. This guest post is part of a series adapted from his new book The Undercover Economist Strikes Back: How to Run or Ruin an Economy

Robert A. Radford studied economics at Cambridge University, and worked at the International Monetary Fund. In between, he spent half the war in a German prison camp, and on his release wrote an article, “The Economic Organization of a P.O.W. Camp.” It gives a surprising insight into economic recessions.

The building blocks of the P.O.W. camp economy were parcels of food and cigarettes that the prisoners received from the Red Cross. These parcels were standardized—everybody got the same, beyond the occasional package from home. Occasionally, the Red Cross received bumper supplies, or ran short; in those circumstances everybody enjoyed a surplus or a shortage. Naturally enough, while prisoners had equal rations, they did not have identical preferences. The Sikhs didn’t have much use for their rations of beef or razor blades, for example; the French were desperate for more coffee; the English wanted more tea. Read More »



How Does the Economy Actually Work? Ray Dalio Explains

Ray Dalio is the founder of Bridgewater Associates, known to some as “the world’s richest and strangest hedge fund.” He has appeared on this blog before, talking about the upsides of negative feedback. Now Dalio has put together a beguiling 30-minute video that tries to explain how the U.S. economy actually works. Don’t be ashamed if you find out a lot you didn’t know — as Dalio makes clear, most policy makers don’t know much about the economy either. Read More »



How Politicians Plug Electric Cars

A new study by Bradley W. Lane, Natalie Messer-Betts, Devin Hartmann, Sanya Carley, Rachel M. Krause, and John D. Graham on why governments promote electric vehicles finds that the environmental benefits of the vehicles have little to do with politicians’ motives for supporting the industry. Perhaps not surprisingly, “Government Promotion of the Electric Car: Risk Management or Industrial Policy?” (gated) finds that the economic benefits of the industry are the primary motivator for most governments. From the press release:

Contrary to common belief, many of the world’s most powerful nations promote the manufacture and sale of electric vehicles primarily for reasons of economic development – notably job creation – not because of their potential to improve the environment through decreased air pollution and oil consumption.

This is among the main findings of a study by researchers at the Indiana University Bloomington School of Public and Environmental (SPEA) and University of Kansas that analyzed policies related to electric vehicles (EVs) in California, China, the European Union, France, Germany, and the United States – political jurisdictions with significant automotive industries and markets for EVs.

“Billions of dollars are being invested despite doubts that some express about the viability of electricity as a propulsion system,” said John D. Graham, SPEA dean and co-author of the study. “The objective of many of these national and sub-national governments is to establish a significant position – or even dominance – in the global marketplace for these emerging, innovative new technologies.”



The Wintry Economics of the Arab Spring

Most of the coverage of the turmoil in Egypt and Syria (the latter of which has decreased in proportion to an increase in coverage of the former) focuses on political, religious, and social factors. These are all obviously important. But once you read David P. Goldman‘s op-ed in the Wall Street Journal about the economic underpinnings of the Arab revolutions, you may see things differently. A few key excerpts:

Sometimes economies can’t be fixed after decades of statist misdirection, and the people simply get up and go. Since the debt crisis of the 1980s, 10 million poor Mexicans—victims of a post-revolutionary policy that kept rural Mexicans trapped on government-owned collective farms—have migrated to the United States. Today, Egyptians and Syrians face economic problems much worse than Mexico’s, but there is nowhere for them to go. Half a century of socialist mismanagement has left the two Arab states unable to meet the basic needs of their people, with economies so damaged that they may be past the point of recovery in our lifetimes.

This is the crucial background to understanding the state failure in Egypt and civil war in Syria. It may not be within America’s power to reverse their free falls; the best scenario for the U.S. is to manage the chaos as best it can.

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Why Family and Business Don’t Mix: A New Marketplace Podcast

Our latest Freakonomics on Marketplace podcast is called “Why Family and Business Don’t Mix.” (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript.) It’s based on a recent paper by Alberto Alesina and Paola Giuliano called “Family Ties.” It argues that strong family ties bring a lot of benefits, but  may also depress economic activity:

We study the role of the most primitive institution in society: the family. Its organization and relationship between generations shape values formation, economic outcomes and influences national institutions. We use a measure of family ties, constructed from the World Values Survey, to review and extend the literature on the effect of family ties on economic behavior and economic attitudes. We show that strong family ties are negatively correlated with generalized trust; they imply more household production and less participation in the labor market of women, young adult and elderly. They are correlated with lower interest and participation in political activities and prefer labor market regulation and welfare systems based upon the family rather than the market or the government. Strong family ties may interfere with activities leading to faster growth, but they may provide relief from stress, support to family members and increased wellbeing. We argue that the value regarding the strength of family relationships are very persistent over time, more so than institutions like labor market regulation or welfare systems.

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Why Is No One Talking About the Stock Market’s All-Time High?

U.S. stock markets* are flirting with all-time highs (it may happen today) but I am hearing and reading very little about it. Why is that?

I can think of a few possible reasons, and am eager to hear yours.

1. After the spectacular meltdown of 2007-2009, a lot of people are generally gun-shy and/or inattentive.

2. Since so many people sold into the teeth of the meltdown, and stayed on the sidelines since, a new high is to them relatively bad news.

3. Because the economy itself is not quite roaring, a roaring stock market doesn’t seem legit (unless, of course, you consider it a leading indicator, which it usually is).

4. Just “getting back” to an all-time high from more than five years ago is, at best, a muted victory.

All that said, I remain surprised by the lack of chatter.

*The Dow and S&P 500, at least; the NASDAQ is still a very long way off its tech-bubble high.