Thursday, March 22, 2007

2 Stories on Inflation

First, Venezuela is trying to combat inflation by revaluing the bolivar (the Venezuelan currency). The new currency, the boliver fuerte, will be worth 1,000 of the old bolivars. The inflation rate in Venezuela recently reached 20%. The problem with this policy is that it will not have much effect unless the underlying causes of the inflation (like increases in public spending) are taken care of. In fact,
Gastón Parra, the president of the central bank, went on television this week to emphasize that the effect of these measures on the value of Venezuela’s currency would be neutral, neither increasing or decreasing salaries, debts nor the price of consumer goods. Private economists, however, say the changes, combined with inflation, could heighten confusion over prices.
An extreme case of inflation problems is Zimbabwe. The World Bank estimates that inflation in that country will reach 4,000% by the end of the year. That means that a t-shirt that cost $10 in January will cost $410 by December. It has reached the point where "Business deals can only be negotiated a few hours ahead because prices are rising so rapidly." The article also mentions that the printing of money by the Zimbabwean government was temporarily stopped because the government "ran out of foreign currency to pay for the paper and ink it needed for the bank notes."

(Source: Free Exchange)

Get Rich or Die Tryin' as an Economist

If you are wondering whether economics majors can make a lot of money without working on Wall Street, here is the example of David Teece, who runs an economic consulting firm called LECG.

Economic consulting firms provide economic expert witnesses for court cases and are becoming increasingly valuable. Teece earns just under $3 million a year as head of LECG and as an expert witness, and he has this to say about the prospects of working in an economics consulting firm:
"I won't get many thank-you notes for this, but we've given economists the chance to earn investment bankers' incomes," Prof. Teece says. "If you're successful with us, it isn't hard to make half a million dollars a year." He estimates that 60 LECG experts topped the $500,000 mark last year.
So if I don't show up on Monday, you'll know why...

(Source: Freakonomics Blog)