Random thoughts

Keeping an eye on Cyprus–still waiting to see whether Parliament can get a bailout package approved. In the meantime, a couple of puzzling things I haven’t quite been able to wrap my mind around…

First, I still don’t understand why Iceland has been so eager to join the Eurozone, especially in the wake of the massive recession caused by their financial crisis. For those needing a refresher, Iceland was one of the first casualties of the 2007-8 global financial crisis. Iceland looked remarkably like the current situation in Cyprus–fostered by a wave of deregulation and a laissez faire mentality, Iceland’s financial sector racked up liabilities worth 8-10 times more than Iceland’s GDP. Iceland’s economy and banking system collapsed during the Financial Crisis, but their economy has recovered fairly nicely since (especially compared to countries experiencing similar crises, like Ireland). It’s my understanding that one of the major factors in their recovery has been the devaluation of the Icelandic Krona–it dropped to some 50% of what it was worth from 2000-2007, allowing Iceland’s economy to instantly become a lot more competitive (in terms of wage prices and the cost of exports). By joining the Euro, Iceland seems to be giving up the single factor that has played the largest role in their economic recovery; the ability to devalue their currency. I haven’t really seen a convincing explanation yet for why Iceland would benefit from joining the Euro; to me, this sort of drives home the fact that the EU/Euro-zone is primarily a political project, and economic rationale may not always play the most prominent role in decisions about membership.

Next, I’ve been thinking a bit recently about the importance of perfect information in decision-making. A recent paper from Caroline Hoxby looked at the application patterns of high-achieving, low-income students. it turns out that many student’s in this demographic fail to apply to any highly selective colleges, even though they get in and graduate from these schools at similar rates to high-income students, and the average tuition cost at a highly selective university is lower than many less selective universities (for the particular high-achieving, low income demographic). It turns out that basically these students just aren’t aware of the fact that they should even be applying to these schools.

Another recent example of that comes from Ezra Klein; it appears that the most popular elements of the Affordable Care Act are also its least well known. (I’m curious as to the causality here; I wonder if the law is unpopular because its ‘better’ provisions are relatively unknown, or whether opponents of the law (that don’t support any of its provisions out of principle) simply haven’t bothered to get to know the details of the law, and, thus, the people that are aware of the law’s full provisions are supporters anyways). At any rate, it just makes me a little sad that there are so many programs out there designed to help those in need that are going underutilized, especially in the case of low-income students applying to selective colleges–schools have guidance counselors; they need to start doing their jobs.

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One thought on “Random thoughts

  1. Pingback: Euro-confusion | lil stevie's econ blog

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