Recent Posts
(Note: Page numbers referenced in posts prior to June 1, 2011 refer to 5th edition)
Trash Talking at the Harvard-Yale Game
A sign shows an Ivy-League insult for people who do not sufficiently diversify their portfolio.
Textbook References:
Pages 580-584 “Managing Risk”The Divide over Market Efficiency
How accurate is the Efficient Markets Hypothesis? Clifford Asness and John Liew provide a detailed discussion of the debate over the answer to the question. They conclude that the Efficient Market Hypothesis is valuable, even if it is not completely correct.
Textbook References:
Pages 585-589 “The Efficient Market Hypothesis”Fact-Checking The Economist
Mankiw points out an error in a statement about compounding from The Economist magazine.
Textbook References:
Pages 578-580 “Present Value: Measuring the Time Value of Money”On Au
Mankiw reviews the academic literature on gold as a portfolio investment. He concludes that it is reasonable to hold about two percent of one's long-term investments in the form of gold.
Textbook References:
Pages 580-584 “Managing Risk”On Stock Investing
Mankiw summarizes what economists know about investing in the stock market. He recommends a diversified global portfolio.
Textbook References:
Chapter 27 “The Basic Tools of Finance”Five Lessons from the Financial Crisis
Olivier Blanchard says that economists should be more humble. He also says that financial systems and interconnectedness matter, and that the life of central bankers has become more complicated.
Textbook References:
Page 561 “Financial Crises”What is the purpose of insurance?
Should insurance just cover unpredictable, catastrophic events, or should it also cover small, predictable expenses?
Textbook References:
Pages 580-584 “Managing Risk”An Interview with Eugene Fama
Robert Litterman conducts a wide-ranging interview with Eugene Fama. They discuss principles of finance, financial institutions, and financial reform.
Textbook References:
Pages 584 “The Basic Tools of Finance”A Bond Market Meme, Revisited
Mankiw provides more evidence that timing the market is very difficult.
Textbook References:
Pages 584-590 “Asset Valuation”On Market Timing
Dilbert gives his boss advice on buying stocks.
Textbook References:
Pages 584-590 “Asset Valuation”IQ and Investment Decisions
According to Robert Schiller, people with high IQs make somewhat better financial investments.
Textbook References:
Chapter 27 “The Basic Tools of Finance”Should health insurance be required to cover birth control?
John Cochrane argues that insurance is supposed to cover large, unanticipated expenses, not small, regular, and predictable expenses.
Textbook References:
Pages 581-582 “The Markets for Insurance”15 Years Later
Over the past 15 years, the return from the U.S. bond market has surpassed the return from the U.S. stock market.
Textbook References:
Pages 583-584 “The Trade-off between Risk and Return”September 28
Robert Shiller on Stock Valuations
Robert Shiller points out that the price-to-earnings ratio in the stock market is still above its long-run average.
Textbook References:
Page 559 “Key Numbers for Stock Watchers”Pages 584-589 “Asset Valuation”
April 25
Shiller vs Siegel on Stock Market Valuation
Robert Shiller thinks that stocks are a bit overvalued. Jeremy Siegel disagrees.
Textbook References:
Page 579 “Key Numbers for Stock Watcher”Pages 606-610 “Asset Valuation”
March 16
An Ec 10 Success Story
A Harvard undergraduate wrote her thesis on the meltdown of the market for CDOs. Michael Lewis calls it "more interesting than any single piece of Wall Street research on the subject."
Textbook References:
Pages 600-605 “Managing Risk”Pages 606-610 “Asset Valuation”
Pages 654-655 “The Financial Crisis of 2008”
March 1
Tobin's Q
A graph shows Tobin's Q for the whole economy from 1900 to the present. In this case Tobin's Q is the total price of the stock market divided by the replacement cost of all the companies listed. Its current value suggests that the stock market is overvalued.
Textbook References:
Pages 606-610 “Asset Valuation”February 2
Moral Hazard
Mankiw provides an example of moral hazard from his own life.
Textbook References:
Pages 484-485 “Hidden Actions, Principals, Agents, and Moral Hazard”Pages 601-603 “The Market for Insurance”
January 14
An Interview with Burt Malkiel
There is a short video in which Burt Malkiel discusses the Efficient Market Hypothesis.
Textbook References:
Pages 606-610 “Asset Valuation”December 26
Malkiel's Recommended Asset Allocation
Burton Malkiel recommends index funds for baby boomers. The latest edition of his book suggests a larger allocation towards foreign assets than previous editions.
Textbook References:
Pages 606-610 “Asset Valuation”December 16
The Economics of Seinfeld
Clips from the TV show "Seinfeld" are used to illustrate a variety of economic concepts.
Textbook References:
Pages 4-5 “Principle 1: People Face Trade-offs”Pages 5-6 “Principle 2: The Cost of Something is What You Give Up to Get It”
Page 6 “Principle 3: Rational People Think at the Margin”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Chapter 3 “Interdependence and the Gains from Trade”
Pages 67-72 “Demand”
Pages 73-76 “Supply”
Pages 144-153 “Controls on Prices”
Chapter 10 “Externalities”
Pages 226-227 “The Different Kinds of Goods”
Pages 227-232 “Public Goods”
Pages 230-232 “The Difficult Job of Cost-Benefit Analysis”
Pages 232-237 “Common Resources”
Pages 274-275 “Fixed and Variable Costs”
Page 281 “Economies and Diseconomies of Scale”
Pages 312-315 “Why Monopolies Arise”
Chapter 16 “Monopolistic Competition”
Pages 370-378 “The Economics of Cooperation”
Pages 399-400 “The Supply of Labor”
Page 414 “Compensating Differentials”
Page 442 “Utility”
Page 465 “Utility: An Alternative Way to Describe Preferences and Optimization”
Pages 484-489 “Asymmetric Information”
Pages 556-558 “Technological Knowledge”
Pages 578-580 “Financial Intermediaries”
Pages 598-600 “Present Value: Measuring the Time Value of Money”
Pages 603-604 “Diversification of Firm-Specific Risk”
Pages 606-609 “The Efficient Market Hypothesis”
Pages 630-631 “The Economics of Unions”
Pages 703-705 “The Prices for International Transactions: Real and Nominal Exchange Rates”
Pages 707-708 “The Basic Logic of Purchasing Power Parity”
Page 833 “Time Inconsistency”
November 4
Malkiel's Recommended Reading
Burton Malkiel recommends five books on investing.
Textbook References:
Pages 606-610 “Asset Valuation”July 31
Stocks Look Cheap
By one measure, stocks look under-priced.
Textbook References:
Pages 577-578 “The Stock Market”Page 579 “Numbers for Stock Watchers”
Pages 606-610 “Asset Valuation”
July 19
Jeremy Siegel's Forecast
Jeremy Siegel is Bullish on stocks.
Textbook References:
Pages 577-578 “The Stock Market”Pages 606-610 “Asset Valuation”
July 6
An Interview with Bob Hall
A wide-ranging interview with Robert Hall touches on a variety of topics.
Textbook References:
Pages 7-8 “Principle 4: People Respond to Incentives”Pages 566-567 “Property Rights and Political Stability”
Pages 604-605 “The Trade-Off Between Risk and Return”
Pages 654-655 “The Financial Crisis of 2008”
Pages 740-742 “Three Key Facts About Economic Fluctuations”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”
July 2
A New Problem for Insurance Markets
The discovery of genetic markers for longevity will affect markets for life insurance and annuities.
Textbook References:
Pages 485-486 “Hidden Characteristics: Adverse Selection and the Lemons Problem”Page 488 “Screening to Induce Information Revelation”
Pages 601-603 “The Markets for Insurance”
June 15
Stock Market Valuation
By two common measures, the stock market is substantially overvalued.
Textbook References:
Pages 577-578 “The Stock Market”Page 604 “Market Risk”
May 28
Fama on Financial Reform
There is a video of an interview with Eugene Fama. He discusses the recent financial crisis and suggested reforms.
Textbook References:
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 606-610 “Asset Valuation”
Pages 654-655 “The Financial Crisis of 2008”
Pages 821-822 “Bernanke's Challenges”
March 24
A Fiscal Train Wreck
In an "exceedingly rare" event, bonds issued by a private company (Warren Buffet's Berkshire Hathaway) paid a lower yield than bonds of a similar maturity issued by the U.S. Treasury. That is evidence that investors are getting nervous about the size of the U.S. deficit.
Textbook References:
Pages 246-248 “The Fiscal Challenge Ahead”Pages 576-577 “The Bond Market”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 604-605 “The Trade-off Between Risk and Return”
Pages 842-843 “Dealing with Deficits”
March 16
An Ec 10 Success Story
A Harvard undergraduate wrote her thesis on the meltdown of the market for CDOs. Michael Lewis calls it "more interesting than any single piece of Wall Street research on the subject."
Textbook References:
Pages 600-605 “Managing Risk”Pages 606-610 “Asset Valuation”
Pages 654-655 “The Financial Crisis of 2008”
March 7
A Life in Finance
Eugene Fama writes an autobiographical sketch.
Textbook References:
Pages 606-609 “The Efficient Markets Hypothes”Pages 484-485 “Hidden Actions: Principals, Agents, and Moral Hazard”