I haven’t had time to run the numbers, but I’m a bit dissatisfied with the Misery Index in this case. The most obvious issue is that while inflation is a bad thing, so is deflation; however, under the Index, a high deflation rate is seen to mitigate high unemployment. The second is that steady, targeted inflation is a sign that the economy is growing smoothly and under control.

Again, without crunching the numbers, I can’t say anything specific, but it seems to me that a formula with nicer properties might measure either the absolute rate of change from one period to the next (capturing volatility fairly cleanly) or, for the less mathematically inclined, the absolute value of the change. The problem of measuring a rate of change is that you’d need to correct for unemployment as well; measuring rates of change also leaves you sensitive to different lengths of time being measured, whereas the misery index as it stands can be seen as a snapshot.

So, a compromise: set a benchmark – perhaps 3% for inflation and 5% for unemployment, since those are numbers that are bandied about as “targets.” Snapshot the measure by measuring the absolute value of the rate minus the benchmark figure.

Misery Index
Accurate, but hamfisted
Plausible? Who knows?

In addition, I am a twin. Why this is relevant will become clear behind the cut.

The models we studied in class were interesting, of course, but what I really wanted to write in was “This is just make-work bias.” (Make-work bias is a generalized case of the Parable of the Broken Window.) The application of Keynesian public-work theory – that the Obama plan creates jobs to weather the recession, and when the project is done, you have a public good – ignores the question of whether the resources utilized to create the public work are being used as efficiently as they can be.

Imagine how amused I was to read Bryan Caplan’s article, Separating Twins as Economic Illiteracy, which looks at putting twins in different classrooms through the lens of make-work bias. As a twin myself, I was subject to the rule of thumb Caplan discusses. My brother and I were in a small school for kindergarten and first grade, so since there was only one class for each grade, we were stuck together. In second grade we changed schools and were separated; we spent half of third grade separate, half together, and then we were entirely separate until we began class-mixing in seventh grade. Talk about your natural experiments.

Applying the efficiency criticism to Caplan’s twin hypothetical, separation arguments based on encouraging twins to make new friends ignore the benefits of the twins’ relationship. The analogy of the new friends to the public works project is clear – they are facially positives, but they may not be the optimal product of the available resources, and isn’t optimization the goal?

Background: After spending $300 million for an election to congeal his minority into a majority government, Stephen Harper made little progress and ended up with another minority government. This appeared to be well and good, despite the fact that a coalition of the left-wing parties plus the Bloc Quebecois could easily defeat the Conservative government in a confidence motion if it decided to do so. However, because Harper failed to deliver an economic stimulus package in his fall budget, the coalition is attempting to take over as government.

That’s the official reason, anyway. Stanley Hartt argues that the whole thing is a pretext to prevent the Conservatives from cutting per-vote campaign funding. Lysiane Gagnon, predictably, thinks this is fantastic.

Governor-General Michaelle Jean is faced with an essentially subjective decision about whether to accept the coalition’s overtures to replace the minority government.

Bloggers are amused.

This is an interesting bit of political theatre in that the left coalition is one of rejection rather than agreement. Dion disagrees with the Bloc’s reason for existence. Layton smelled blood in the water and was poised to take over for Dion at the slightest misstep. I have no doubt that the parties can cooperate, but their agenda will be difficult to characterize as anything but white bread.

This all assumes that Michaelle Jean feels it’s appropriate to allow Dion to step in as Prime Minister, of course, though it would be difficult for her to disallow it. The political costs to defeating a motion of confidence and calling another election would be ridiculously high; if Jean values continuity and stability over effective government, then it would be against the left’s interest to defeat a motion of confidence lest they go through another election just to have a similar result but provide a procedural opportunity to request to form a government.