On Sons and Daughters

Over at the Freakonomics blog, I learn that

nurses, social workers and kindergarten teachers�those with �empathic� traits�also had more daughters than sons....scientists, mathematicians and engineers are more likely to have sons than daughters.

I wonder: Could this result be related to the finding of Andrew Oswald that

how parents vote is linked to the gender of their children. The more daughters there are in a household, the more likely the parents are to vote Labour or Liberal Democrat.

When I first learned the Oswald result, I concluded that having daughters must have a causal effect on political preferences. (This seems to be Oswald's interpretation as well.) That inference was based on the assumption that sons and daughters are distributed randomly. But perhaps that assumption is wrong. Maybe having daughters is instead a proxy for other personality characteristics that influence a person's politics.

Update: The study cited by the Freakonomics blog is, I just learned, not without controversy. See the critical comments of Columbia University statistics prof Andrew Gelman.

A New Dollar Mantra

Today's Wall Street Journal reports on "dollar policy:"

Mr. Paulson offered this statement on the U.S. dollar: "A strong dollar is in our nation's interest and that currency values should be determined in open and competitive markets in response to underlying economic fundamentals." It is a phrase he is sure to repeat over the next two and a half years, a tactic that another former Goldman Sachs chief executive, Robert Rubin, used to avoid inadvertently moving financial markets with offhand comments on the currency.

He didn't say what is widely understood inside the Bush administration and among economists: Some weakening of the U.S. dollar is likely in response to U.S. trade deficit that has grown very large and to flows of foreign savings to the U.S. that are unlikely to keep growing.

One of the more bizarre rituals in Washington is the press corp trying to get a Treasury Secretary to say something newsworthy about the exchange value of the dollar. The Treasury Secretary's goal is to say something that makes him look smart and authoritative without actually saying anything substantive which might cause market volatility.

The old Rubin mantra fits the bill, but it is getting a bit stale by now. I have a suggestion for a new dollar mantra that is just as good and a bit shorter. It's...

Supercalifragilisticexpialidocious!

Even though the sound of it
Is something quite atrocious
If you say it loud enough
You'll always sound precocious.

Supercalifragilisticexpialidocious!

Does the Fed Need to Look Ahead?

According to conventional wisdom, monetary policymakers need to be forward-looking. Because changes in monetary policy affect the economy with a lag of six to twelve months, the argument goes, central bankers need to look ahead to future economic conditions when setting interest rates and the money supply. This was the point of view advanced recently in Political Calculations:

Mankiw's method has one main drawback - it is backward-looking since it relies on statistics generated by federal government agencies covering the time period from when the data was last reported.

"Mankiw's method" is a version of a Taylor rule that I discussed in a previous post:

Federal funds rate = 8.5 + 1.4 (Core inflation - Unemployment),

where "core inflation" is the CPI inflation rate over the previous 12 months excluding food and energy, and "unemployment" is the seasonally-adjusted unemployment rate.

I have at times made similar arguments myself about the importance of forward-looking monetary policy. But is this conventional wisdom right? Is it possible that if financial markets are forward-looking, then central bankers don't need to be?

Suppose that we get some news that inflation will be picking up over the next few quarters. Under a backward-looking rule such as the one above, the Fed would not raise the Federal funds rate until the higher inflation is realized. Such a delay might seem undesirable. But because long-term interest rates and other asset prices are looking ahead to future Fed actions, they will react immediately. These financial-market reactions will automatically start to put downward pressure on aggregate demand, offsetting some of the inflationary pressure, even before the Fed acts.

Here is a conjecture: To keep inflation contained, it is important that the Fed respond vigorously to inflation, and that financial markets are convinced the Fed will respond vigorously, but it is less important that the Fed respond promptly.

Of course, in practice, if the Fed does not act promptly, financial markets might start to doubt the Fed's commitment to act vigorously (especially when there is a new Fed chair). But once inflation-fighting credibility is established, it might not be very costly for a central bank to follow backward-looking monetary policy rules.

lunch time, palais de tokyo, 08/02/06

Henderson on the Minimum Wage

Economist David Henderson has a piece in today's Wall Street Journal with a great opening paragraph:

"The Right Minimum Wage: $0.00." So read an editorial headline in one of the most respected newspapers in America. The editorial stated: "There's a virtual consensus among economists that the minimum wage is an idea whose time has passed. Raising the minimum wage by a substantial amount would price working poor people out of the job market." Can you guess the newspaper? The Wall Street Journal, perhaps? Right city; wrong paper. This editorial appeared on Jan. 14, 1987, in the New York Times.

What's next for the Fed?

Because I am interested in both monetary policy and self-promotion, I enjoyed a recent post over at Political Calculations.

ruba's leaving party, la perle, 07/31/06