Tuesday, January 29, 2008

An Economic Response to Vacation

The following is a letter I wrote to my close friend, Kevin, regarding the chances of me taking a vacation in the summer after my having just started a new job, needing a vacation to actually rest, and the other constraints that actually go into having a vacation.


Regarding the amount of time I would have accumulated for vacation by the summer. The answer to that question is multi-faceted.

Firstly, in terms of actual time, I will not have much. To say that I would have none would be a lie. However, knowing that I will probably not even have a full week, there still are other issues.

In my experience, and with other empirical research (Daniel Gilbert comes to mind), it has been shown that when together with the same person, or group of people, for a prolonged period of time (let us say about a week), one's level of happiness decreases. "Happiness" of course may be loosely defined; however, the relevant difference in happiness – and in this case, decrease in happiness – is significant and makes the point. The reason why honeymoons and married couples fair far better, and may actually have a good time is because they have a "psychological reset," otherwise known as sex.

, I believe it is time we all were honest with ourselves and understood that the large pitfall of vacations is that it is work in disguise. This is mostly the reason why when workers actually end up coming back to work, they are feeling refreshed only in the sense that the work they were doing during their vacation had the possibility to provide pleasure. Empirically, this can be seen easily with families because the parents have to work hard in order to make sure everyone is happy. Scott Adams once noted that it was like, "trying to solve a rubix cube 10 times a day."

, during the instances when vacations do not include much effort, they usually cost vast amounts of money. In the example case you have proposed to me, it will cost money. Money, which I am not sure I will have.

o, in summary:

- Time is a commodity that I don't know how much I have of.
- It will still take money to go do this.
- No sex.
- Friends may drive each other insane over the course of a week.

Remember to keep in mind that vacations are wonderful and necessary, but when we look at vacations from outside the box, we can see where the pitfalls of some "normal" vacations lie.

Sunday, January 20, 2008

What the Economy Needs

I have been asked lately for my ideas on when the Fed would lower the funds rate, and essentially the effect it would have on the economy. I have no doubt that many people have been asked this question, however there a few main points to be considered and that a few economists have touched on.

In the simplest terms, the idea behind a lowering of the fed funds rate is for the incentive to hold money in the bank to be so low that many people (mostly investors, or rather, investment banks) will use the money. The use of said funds is then said to spur on spending for capital (jobs and the like) in the economy.

Does it work? My best guess, maybe. But, along with many others like Kevin Hall at McClatchy Newspapers, Milton Friedman – whom Hall mentions, and other economists always want to point out is that using monetary policy (the federal reserve and its funds rate) and fiscal policy need to be thought about simultaneously. That is not to say that one cannot use both of them at the same time, but merely to understand that they both have a probabilistic effect the economy.

Greg Mankiw posed that proper question just a few days ago. He wrote that if a reporter could ask any committee member on the fed any question, it would be:

If the economy now gets the fiscal stimulus being proposed (about 1 percent of GDP), does that mean that the Federal Reserve will cut interest rates less than it otherwise would?

My follow-up questions:

If the answer to the first question is No, then ask, Why the heck not? Monetary and fiscal policy are two tools available to increase the aggregate demand for goods and services. The goal here is to prop up demand sufficiently to maintain full employment without causing inflation. If the U.S. government is using fiscal policy more, it should use monetary policy less.

If the answer to the first question is Yes, then ask, How much higher will interest rates be kept as a result of the fiscal stimulus? And is it really better to have a fiscal stimulus and higher interest rates than a smaller deficit and lower interest rates?

But let us not forget that the economy has a way of doing what it wants to do no matter the coaxing (simply think of how irrational our partisan political hatred can be). Comedian, Lewis Black says that the economy goes up and down and no one knows why. Well, to some extent, he is speaking truth because many economists are willing to admit that we don’t know where we are economically until an event has already passed us, and we have enough time to research the economic past.

Right now, your best bet to figure it out may as well be to bet…on Intrade that is. Even as much as people want put behind them the sub-prime mortgage losses that larger banks have written down losses on, there may still be more ahead of us. As Paul Krugman and Robert Samuelsson have mentioned separately, the falling asset prices on homes is the event to really worry about because we may not be ready for the shock as to how much we were willing to pay just because someone on the other side of the desk said, “Oh, well, home prices will continue to rise, and you can always re-finance.”

I hate to say it, but Krugman’s doom and gloom scenarios may have some possibility to them after all, and if so, things may have to get worse before they can get any better.

Sunday, January 13, 2008

F1 and WRC 2007 in Review

If you were missed both the 2007 WRC and Formula 1 season, then you probably missed the two most exciting season’s within the last decade. All be it, there have been exciting moments before.

What has happened in Formula 1 this year was a testament to what really is at the foundation of Formula 1. All questions that any one person could have in what is involved in an F1 season had those inquiries fulfilled this season. While many feel that they have more questions than answers, I can truly say that the sport uncovered itself finally into what truly lies underneath.

The fans had what they superficially always needed, which is a driver’s championship completed as closely as possible. Not only that, but the man who ended up becoming the least likely driver to win, did win. Of course, I’m speaking of Kimi Raikonnen. He, with his 110 points, defeated Fernando Alonso and Lewis Hamilton who each had 109 points.

On top of the close competition this season, the fans also were treated to something that they always salivate for, which is a rookie sensation. Luckily for those in Formula 1, most accounts have Lewis Hamilton as a well mannered young man with exceptional talent and grace. Hamilton’s disposition off the track is a true pleasure to witness and be a part of.

In fact, to my mind the closest thing to a slanderous remark I can recall Hamilton making is during the press conference after qualifying, in which he was held up by teammate Fernando Alonso for refueling, therefore costing Hamilton the ability to complete one more timed lap. When Peter Windsor asked how much time Hamilton needed in order to start another timed lap, Hamilton replied, “Probably the amount of time I had to wait behind in the pit lane.” And no one could discount the rookie for his feelings in that situation.

However, this season, fans and pundits have become critical on much of the business of Formula 1. Despite your opinion, and which constructor you cheer for, this season and the legal cases behind it have shown much more about how the FIA governs Formula 1.

Firstly, the application of punishments continues and will most likely forever be Draconian. When I and the rest of the world found out about the punishment against McLaren (loss of manufacturer points and a fine of $100 million), and its grandiose nature, I was appalled, but not in the least bit surprised. For those of us who hoped that the publicity of the decision would bear much stronger scrutiny onto the FIA in terms its future decisions in such matters, we were disappointed in the case and ruling for Renault F1 who was embroiled in a scandal much like McLaren was.

Renault’s case was at best, similar to Renault’s, and at its worst, a true espionage scandal. However, practically no penalty was assigned.

Also coming to light this season was the internal strife that many teams face with their drivers. Such problems are not new, but once again, I am surprised that the fans have been taken aback so much this season. As well, the espionage case against Coughlan and McLaren is not exactly something new either. Many engineers when they leave take knowledge with them. This is why when Mike Gascoyne left Toyota in 2006 he placed himself on gardening leave for the rest of the season. Therefore, when Gascoyne joined Spyker (now Force India) in 2007, Toyota could not excuse him of using information that was the property of Toyota.

Op-eds from GrandPrix.com have shown that there is now a consensus forming that when an engineer leaves a team, he may not take anything with him except for what he or she has in their mind.

In the World Rally Championship this year, it was a close driver’s championship. Albeit, both drivers streaked and showed the impact of what happens when a driver does not finish a rally. (It can be argued that Hamilton’s DNF this season cost him the driver’s title in F1.) The story was that as Grönholm’s luck changed near the latter part of the season, Loeb and Citroen struck back and one yet another World Rally Championship. In the constructor’s battle though, Ford easily clinched the title over Citroen.

Also in the news was the sensational driving of Grönholm’s teammate, Miko Hirovonen, and yet another Finnish driver piloting a Ford Focus, Jari Matti Latvala. Latvala performed so well, that he will be taking Grönholm’s seat in the 2008 season; as Grönholm is retiring.

For Subaru, it was yet another year of underperformance, bad luck, and intermingling reliability issues. They will have a completely different vehicle to work with in the 2008 season as the Impreza has been completely redesigned from Subaru.