Some quick links on the flash crash, China’s rare earth elements monopoly, Larry Summers, and economics at UCSD.
Nanex disputes the conclusions of the CFTC-SEC analysis of the May 6 flash crash, noting that the blamed Waddell & Reed trading algorithm was completely shut down during the main events.
Ed Dolan notes that China’s 95% share of the rare earth elements monopoly arose not because the ore is only found there, but instead because “Chinese authorities were willing to turn a blind eye to environmental devastation caused by primitive, often illegal, but low-cost small-scale mines.”
Brad DeLong comes to Larry Summers’ defense.
And here’s something I wrote for our department newsletter last summer on taking economics beyond the classroom.
JDH,
One question and one point. First with the question. Doesn’t the existence of China’s “rare” element monopoly undercut your case for using commodity prices as a proxy for gauging how far the Fed should go with QE2? Most of the commodity charts that you’ve shown to make your point have also been “rare” elements.
As a comment, looking at China as a short-run monopolist makes sense in some contexts, but I doubt that it works as an explanation of China’s motives. China is not trying to capture a monopoly position because they are trying to extract maximum consumer surplus from global demand anymore than China bought US Treasuries because they were trying to maximize investment returns. China’s motives are primarily political, not economic. I suspect it would be a mistake to try and predict China’s future actions by assuming economic motives that are probably not there, or if they are present they are subordinate to larger political reasons. The lesson of the fishing boat in Japanese waters shows that China is using its monopoly as a political tool.
2slugbaits: Rare earth elements refers to exotic things like praseodymium and includes none of the standard or even nonstandard commodities that I have ever used in any Econbrowser chart or index.
JDH,
Thanks, but my understanding was that when talking about China trying to corner the market in “rare” elements the reason “rare” is usually put in quotes is because China is also doing the same thing with regard to less rare stuff like copper and nickel. In fact, a few weeks ago NPR had a discussion about how China’s market cornering in “rare” elements includes elements that are not at all rare, but are economically rare in the sense that given world prices it only makes sense to produce them in certain places. China doesn’t want to drive up the price too high, too fast because that might stimulate new production; but China does want to be able to exploit short-run inelasticities for political purposes.
2slugbaits: The story of China and other commodities is of course one we’ve all been talking a lot about. But the specifics that Dolan and others have been discussing here in connection with the fishing boat and political discussions of a Chinese monopoly refer to scandium, yttrium, and the fifteen lanthanides.
Doin’ a heck of a job Barry.
“fishing boat in Japanese waters ”
Apparently this is an assumption?
MIT Technology Review has a piece on Rare-Earths too. They said that we have lost a lot of the technology and experience needed for refining the rare-earths since we stopped being the worlds largest producer in the 1970s. However we are re-starting the Mountain Pass mine in California, which used to be the largest rare-earth mine in the world.
JDH: enjoyed the post about the Roundtable, and I especially enjoyed attending when I lived there!
Now, that DeLong post is interesting. It’s a long thread back to several authors, all of whom would be doomed if linking were a communicable disease.
Here’s how it starts, with Barbara Kivat, a former Time writer and now fellow at NYU:
“Over at the Curious Capitalist, my former colleague Steve Gandel asks me to react to this NYT article about how economists manage to disagree on such fundamental questions as whether the government should spend more or less money in response to economic malaise. I’ve been perplexed by this sort of thing before. In this post from August, I worried about the influence of ideology, and then decided that maybe the bigger take-away is that we should spend less time listening to economists, who, after all, represent just one possible lens onto the world of human behavior, decision-making and social dynamics…
The economists disagree because they don’t have the tools to see the big picture.”
Then Justin Fox, editor of the HBR, adds his take, with this comment, I suppose concluding that differences in views are a function of incentives:
“1. The single most valuable and durable lesson of economics is that incentives matter. Monetary incentives don’t always matter more than other motivations, and sometimes people’s behavior regarding money is a little nutty. But as an organizing principle for a social science, incentives matter is pretty good.
2. Economists respond to incentives, too. Real and potential financial awards affect what they choose to study, how they go about it, and what conclusions they draw. This doesn’t mean all economists are evil sellouts. It means they’re human beings.
3. For people who purport to believe that incentives matter, economists can be strangely touchy when anyone brings up point No. 2.”
So now, we appear to have three explanations of why economists can’t even seem to agree on the fundamentals of what a recession is or how to treat it. Barbara says the problem’s ideology, or maybe not. Maybe it’s a lack of tools. Fox says its incentives.
Well, this is a splendid thesis topic, and utterly central to the role and standing of economists in society and the economy. And it’s amenable to analysis using the tools of economics (oh, the irony!).
So why can’t economists agree?
– Is ideology important? What is ideology, actually, in terms an economist might use?
– If ideology matters, where does in reside in relation to analysis? Beside it, above it, or below it? (Think of the phrase “equity considerations” as a hint to where economists think it resides. Another hint: Do politicians work for economists, or economists for politicians?)
– If it resided above it, would that make economists “touchy”? Why? (See the second hint above.)
– Are there missing tools? What might those be? Is the issue uncertainty about data or outcomes? If we had those tools, would that resolve the conflict?
– Or are incentives all that matter? If the University of Chicago hired Brad DeLong, would he sing a different tune? If he were offered triple his salary to play free-market firebrand, would he feel comfortable doing that? Or is he optimizing something else? What? Why? He’s not optimizing a world view, is he? What is that, anyway?
Slugger,
“Rare Earth” is a band that covered some Motown tunes back in the 1970s. In French (which none of the members spoke, to my knowledge), the band’s name was “Terre Rare”, which they like a lot because it rhymed, like some of their lyrics. There is no record of the band ever touring China, so I’m a little surprised at all the fuss about China monopolizing Rare Earth.
@ Steven Kopits 11/1/10, 08:28 am:
Oh, I do not think that JDH is up for sale, so to say. (Thats why I am still reading econbrowser.)
Yes, but DeLong is already sold out, you are right.
http://imperialeconomics.blogspot.com/2010/10/chinas-gdp-per-capita-global-gdp-and.html
Speaking of China, see above.
China has now set a new standard definition for a crack-up bubble boom; and we know how all bubbles end.
Johannes –
I believe I was insinuating just the opposite about DeLong. I think he is arguing his convictions, and that these are independent of financial considerations. Ideology matters.