Iraqi government bonds

by Daniel on September 18, 2007

Via Marginal Revolution and the Freakonomics blog, Michael Greenstone of MIT’s analysis of developments in Iraq since the beginning of the surge. Most of it is pretty unobjectionable stuff (if not terribly related to economics), but the bit that caught my eye was the use of the secondary market price of Iraqi government bonds (they’re tanking) as an indicator of whether the surge is working.

IRAQI EMPLOYEES CAMPAIGN UPDATE: sorry to interrupt – the post is continued below the fold. The following update is mainly aimed at our British readers – once more could I prevail on the goodwill of other CT authors to keep this one at the top for the rest of UK daytime? Thanks.

Frank Dobson, my local MP, has replied to me about the Iraqi employees. His letter is mainly concerned with administrative arrangements for the speaker meeting on the 9th – I had asked him to book a room for us, but Dan had already sorted one out. He is, however, in firm sympathy with the campaign and is utterly sound on the issue. If any readers who wrote letters the last time we asked have received replies from their MPs, then do please say so in the comments here (or if you have a blog, post them there). We’re trying to keep the list of MP replies up to date; Dan’s apparently having quite a good response to the mailing we sent out but it’s important to keep the blog campaign running too. Thanks very much.
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Expenses, income, bankruptcy

by John Quiggin on September 18, 2007

Andrew Leigh has pointed me to a recent study of US bankruptcy (paywalled, but the abstract is over the page). which concludes that the increased variability of income, and exposure to expense shocks such as medical expenses are not important factors in explaining the dramatic increase in bankruptcy rates since 1970. (I’ve seen a blog link to this also, but can’t find it now).

Count me as unconvinced. The main reason for rejecting income shocks is an explanation of bankruptcy is that, in the model of the paper, households should respond to increasing variance of permanent shocks by increasing precautionary savings. This appears to impute to households a much higher level of ex ante information about future income shocks than they actually possess, and also to rely critically on strong assumptions about rational planning. The whole credit card business is centred on the fact that lots of people (about half the population) don’t pay their monthly balances down to zero and therefore carry semi-permanent debt at very high interest rates. It’s hard to imagine that people who have trouble managing their credit cards are computing, in advance, the income risk they face and making precautionary savings to offset this.

That’s not to discount the importance of the ‘supply side’, in terms of easier access to credit, which has assisted people in managing increasingly risky income and expenses, at the cost of steadily increasing debt-income ratios. But you have to look at both sides of the story, and this paper rules out one side by assumption.
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