Monday, January 19, 2015

5 questions for Nick Rowe about the "victory" of the right:



Nick Rowe writes:
How come no economist on the right is asking "Where are the Galbraiths of yesteryear?"? It's because Milton Friedman won the debate, and John Kenneth Galbraith lost...The right won the economics debate; left and right are just haggling over details. [emphasis mine]
This basically agrees with Chris House, who claims that the facts in economics have a well-known conservative bias.

I wonder if this might not be another instance of "Eternally Recurring 1970s Syndrome." Rowe writes about the 70s like that was when it all went down:
We easily forget how daft the 1970's really were, and some ideas were much worse than pet rocks. (Marxism was by far the worst, of course, and had a lot of support amongst university intellectuals, though not much in economics departments.) When inflation was too high, and we wanted to bring inflation down, many (most?) macroeconomists advocated direct controls on prices and wages. And governments in Canada, the US, the UK (there must have been more) actually implemented direct controls on prices and wages to bring inflation down. Milton Friedman actually had to argue against price and wage controls and against the prevailing wisdom that inflation was caused by monopoly power, monopoly unions, a grab-bag of sociological factors, and had nothing to do with monetary policy.
I was born after the 70s, and so to me that decade doesn't loom quite so large (see Malmendier and Nagel on how those big macro experiences stick with us). So here are the questions I have for Nick Rowe, and for others who may agree with him:


Question 1: What was the left's position in this debate that the right won in the 70s? 

Was the bulk of the left really in favor of Marxism, rather than just a small fringe element? Isn't that setting the bar a little low for the right to win? Or was the left's vision for the U.S. economy centered on price controls for everything?

What exactly was Galbraith's plan that Friedman defeated?

Or was the right's victory the turn toward neoliberalism  (deregulation, freer trade, lower top marginal tax rates) in rich countries?


Question 2: What about the Austrians and other elements of the right that Friedman fought against?

Milton Friedman famously clashed with "Austrians". They definitely seem more rightist, politically, than Friedman. And although they succeeded in injecting some silly ideas into the minds of some people in the finance industry, the Austrians generally lost out to Friedman. Why doesn't this affect the idea that "the right" won the debate?

Also, what about the RBCers? Friedman fought with them, and monetarism (i.e. New Keynesianism) has probably eked out a slim victory in that battle. Do RBCers count as "the right" in your view?


Question 3: What about the turn against monetarism since the crisis?

Although monetarist (New Keynesian) models continue to be the ones used at central banks, and although some heavy-hitting macro people continue to work on them, these models have received a lot of flak and disfavor in academia since 2008, and attention has turned toward models of the economy in which market failures in the financial sector cause business cycles.

Does this constitute "haggling over details"?


Question 4: Has the victory of the right translated into an enduring policy victory?

Since Friedman's time, many types of regulation have decreased, and many types of price controls have vanished. But some types of regulation - environmental regulation, for instance - that the left has advocated have increased in rich countries. And many are struggling to bring back financial regulation.

Meanwhile, government spending continues to climb and climb as a percentage of GDP in rich countries. Tax revenue has not fallen as a percent of GDP. Income redistribution has increased in most rich countries.

Education has not been privatized. Health care has not been privatized, and even in the U.S. is moving toward more government control.

Do these developments point to a policy victory for Friedman and his slice of the right?


Question 5: Is it accurate to say that the left won the economics debate in the 1900s-1930s, and that since then, left and right have been haggling over details?

In the period between 1900 and 1940, many curbs were placed on laissez-faire capitalism. Child labor laws. Workplace safety regulations. Progressive income tax. Product safety and consumer protection laws. Weekends. Social Security. Medicare (and in some countries, universal health care). Land preserves. Antitrust law. Minimum wages.

In the era since Milton Friedman, none of these policies has been eliminated, and few if any have been substantially reduced. Nor have economists formed anything resembling a consensus against any of these policies. The continue to define and shape the lives of most people in rich countries.

So why is it not correct to say that the left won the economic debate in the early 20th century, and Friedman and his slice of the right were just haggling - mostly unsuccessfully - over the details?


Updates

See Nick Rowe in the comment section for answers, and more discussion!

Robert Waldmann offers his thoughts here.

David Glasner criticizes Milton Friedman here.

Sunday, January 18, 2015

DeLong Smackdown Patrol: How worse off are we really?



Brad DeLong has a blog post at the Equitable Growth blog called "Scene-Setting for the Policy Discussion: The American Economy Stumbles." The post is far too pessimistic about America's economic performance, especially over the period from 1980-2000. Here are a few points where I think Brad gets it wrong.

Brad's thesis is the following:
The American economy has done badly over the past generation or so. 
This is not to say other economies have done better: The American economy remains among the richest in the world. However, given the economic lead America had a generation ago, it really ought to still be well ahead of the North Atlantic pack, and it no longer is.
I think this is a defensible thesis, if A) you define "a generation" as 15 years, and B) you deny that Solow convergence should take place at the higher levels of country income.

But in any case, I do not think that Brad successfully defends the thesis!

First, I think Brad dramatically understates the progress Americans experienced during the years from 1980 through 2000:
Across most of the income distribution Americans today are little if any better off than their predecessors back in 1979...Yes, today Americans have remarkable access to incredibly cheap electronic toys. But those are a small part of expenditure, and the costs of securing the standard indicia of middle-class life–a home in a safe neighborhood with good schools and a short commute, college for the children, assurance that a major illness will not lead to bankruptcy, a secure and reasonably-sized pension–have all become more costly relative to incomes. This shift is astonishing: For 150 years before 1979 Americans had confidently expected that each generation would live roughly twice as well in a material sense as its predecessor, not find itself struggling against the current to stay in the same place.
First of all, here is a picture of American median household income:


As you can see, even if we do not adjust for household size, the median American household experienced a substantial rise in income from the 1979 business cycle peak through the 2000 business cycle peak - around a 17% rise. But if you adjust for household size, the increase is around 23%, from a higher base.

Of course, this does not account for A) age, and B) composition. American households got much older from 1980 to 2000, and old people do not work much. Also, there was a boom in low-skilled immigration in the 1990s, which, although it boosted U.S. total GDP and was good for us overall, did tend to reduce the median income through composition effects.

Now, it is true that these figures also do not account for A) home production, and B) leisure. The entry of women into the workforce, which was not fully matched by male exit, meant that parents were spending less time with their children. And leisure did temporarily decline during the 1990s, after holding steady in the 1980s (then soared in the 2000s). So that mitigates the rise in living standards over the 1980-2000 period. But the truth is that in terms of purely material standard of living, the average American was substantially better off in 2000 than in 1980. 

Anyway, Brad claims that the price of housing has gone up. He also claims that people (even well-off people!) live in smaller houses than in 1979:
The rest of the top 5% are about as rich as they might have expected. They have traded smaller houses and more burdensome commutes for more lavish vacations, cheap electronic toys, and greater social order. 
House size, in fact, went up substantially between 1980 and 2000:


Also, I would argue that rent, not the price of a house, is the key measure of the cost of housing. Bubbles in the price-to-rent ratio merely offer households the opportunity for arbitrage. Here, via Mark Thoma and Robert Shiller, is a graph of real rents in the U.S.:


So even as house size soared, real rents stayed flat over the latter part of the 20th century. To me, that looks like a large increase in the standard of living of the average person. 

What about the rest of Brad's "standard indicia of middle-class life," whose cost has supposedly soared? Regarding "a home in a safe neighborhood," the massive crime decline in the U.S. during the 1990s probably helped the lower and middle classes a lot more than the upper classes. Regarding "good schools," the performance of U.S. public schools remained flat or risen slightly relative to other countries, and in terms of NAEP scores, over 1980-2000 (and since). As for "burdensome commutes," this is true: average commute time increased by about 40 minutes per week from 1980 to 2000, and has been flat since 2000 - but this is an area in which new technology may be especially game-changing, since cell phones, texting, games, and podcasts/audiobooks make commuting much more fun. I get more "reading" done on my commute than during any other time.

It is certainly true that college has gotten much more expensive, health care bankruptcies have become more common, and pensions have become less generous (though this last is partly a function of Americans' increased consumption levels as a percentage of disposable income).

But then again, life expectancy has increased by about 5 years since 1980. That is not nothing. And many social indicators, including teen pregnancy and drug abuse, have decreased substantially.

Of course, all these numbers are just statistics - what about the lived experiences of Americans? Over the last two decades of the 20th century, Americans owned more cars, consumed more calories, had more TVs in their house, had bigger houses (as discussed above), and spent much less of their income on food, clothing, and shelter. These are things that mainly affect the marginal utility of the poor and middle class.

Brad's other main contention is that the U.S. is not doing well relative to other rich countries:
If you want a single set of numbers to keep in the front of your mind to understand America’s relative position today, you cannot do better than those in the figure below, copied from the Credit Suisse Global Wealth Report: 
Middle class Americans Not so wealthy by global standards Jun 11 2014 
The median American has only about $45,000 to his or her name, and wealth inequality as measured by the gap between the average and the median wealth is greater by far than in the typical rich country–only Sweden comes close. A generation ago it would have been ridiculous to even consider that the typical middle-class or working-class American might not lose if switched with the typical inhabitant of Australia or Italy or Japan or Finland or Singapore. It is not so ridiculous at all today.
Median net worth, of course, depends heavily on things like asset prices; the number for the U.S. dropped by more than half as a result of the housing bust. Other countries, like Canada, did not experience a housing bust. Also, net worth depends heavily on age, and the U.S. is younger than many of the countries listed above us in the median wealth ranking.

But more fundamentally, is median wealth the proper measure of living standards? Wealth is a function of savings rates, and savings rates depend on consumption levels, which are a choice. During the 1980s and 1990s, Americans chose to consume more of their income than our peers in most rich countries (though this has recently reversed itself in some cases, e.g. in Japan). If you look at median disposable income, the U.S. was ahead of every other rich country except Canada in 2010, despite some convergence:


As you can see, the U.S. was still ahead of the North Atlantic pack in 2010. Only Canada caught up (and we'll see how well that holds now that oil prices have crashed). We still comfortably beat Sweden, Germany, Britain, the Netherlands, and France. Japan is not listed, but the pattern is the same.

If this income disparity continues to hold, then the U.S. can climb back up the median wealth rankings whenever it feels like it - just save more out of disposable income. (Note: This graph does NOT prove that U.S. median standards of living are higher than these other countries, since those numbers are before transfers, and also do not take into account things like transport, crime, pollution, health, nice weather, or good fashion sense. But it DOES show that Americans could climb up the wealth rankings over time, if they wanted to.)

So in conclusion: Bad Brad! In 2000, you believed that American economic policy and the American economy, though far from perfect, had been largely a success (right?). It's understandable to think the 15 years since then have been a big disappointment - they have! - but why should that cause you to revise your evaluation of the period from 1980 to 2000? Do you think that we are now paying for excesses we enjoyed in that period, and that our prosperity increases during that period were thus illusory? I don't think you think that. So don't succumb to excessive pessimism!

Wednesday, January 14, 2015

What does "structural" mean?


There are a million and one definitions of the word "structural." To a builder or architect, the meaning is straightforward: "of, relating to, or forming part of the structure of a building or other item." But that's just the first dictionary definition. The second is "of or relating to the arrangement of and relations between the parts or elements of a complex whole".

In other words, you can use "structural" to mean just about anything you want, as long as you're talking about a complex system. Here are some examples of how people in different walks of life use the word "structural":


1. "Structural estimation"

Econometricians sometimes use a technique known as "structural estimation." This term is usually used in contrast to "reduced-form estimation." It's very difficult to pin down exact definitions of "structural" and "reduced-form" - even economists often don't know where the boundary lies. In general, "reduced-form" models tend to be either linear, or simple stuff like probit or logit. "Structural" models tend to use more complicated functional forms that represent "underlying" economic relationships. The implication of using a "structural" model is that your model can describe a wider array of situations, but this is just sort of implied. "Reduced-form" is often used as a diss, but that's not always fair - after all, if the assumptions that make your model "structural" are wrong, your model will give you a false sense of confidence. 


2. "Structural Poverty"

Advocates for the poor usually don't like the idea that poor people could be non-poor if they altered their behavior. They claim that poverty is the unavoidable result of the way the economy, society, and politics are set up. Being screwed by the system is what they label "structural poverty".


3. "Structural VARs"

In time-series econometrics, you have "reduced-form vector autoregressions," in which the shocks (random stuff) are things you can observe. Unfortunately, because you can observe anything you like and call it a "shock", the shocks in your VAR model will inevitably be correlated, which limits the applicability of the model. So if you want a VAR that will work in all cases - or at least, a much wider set of cases - you need to estimate the "structural" shocks. Since you can't observe these. you have to make some assumptions about how they interact to form the reduced-form shocks.


4. "Structural Deficits"

This refers to government deficits that are unrelated to the business cycle. It is a term used by deficit hawks to mean a deficit that is very dangerous, because it will just keep getting larger unless there are major political changes. A related concept is structural unemployment, which is unemployment that doesn't change with the business cycle.


5. "Deep Structural Parameters"

This is a word that economists use to mean things that don't change in response to economic policy. For example, followers of Robert Lucas often argue that preferences and technology don't respond when policy changes, and should thus be treated as "deep structural" parameters in economic models. In practice, anything will probably change at least a tiny bit in response to some kind of policy, so the assumption of "deep structuralness" will always be an approximation.


6. "Structural Pluralism" 

This is...OK, I don't understand what this is. It's a term used by sociologists. According to this article, "Structural pluralism is defined as the degree of differentiation in the social system along institutional and specialized interest group lines, in a way that determines the potential sources of organized social power." I think that means that when a society has different types of organizations - e.g. religions, unions, corporations, etc. - that all have some sort of influence, you have structural pluralism. But I'm not sure.


7. "Structural Integration"

This is a kooky-sounding type of physical therapy. But it might work!


8. "Structural Assimilation"

This is when minorities have equal access to public institutions. How this could be observed and verified in practice, I'm not sure...maybe you could use a structural model.


9. "Structural Racism"

This is when "dynamics" exist that discriminate against minorities. For the meaning of "dynamics," you will have to wait for a different blog post.


10. "Structural Realism"

This is a philosophy, possibly part of epistemology or possibly part of ontology (I'm never sure where one ends and the other begins), that, according to the Stanford Encyclopedia of Philosophy, "is considered by many realists and antirealists alike as the most defensible form of scientific realism." Further down in the article, we learn that "Structural realism is often characterised as the view that scientific theories tell us only about the form or structure of the unobservable world and not about its nature." Basically, it seems to mean that there's stuff we can't totally know about, but that science can let us know some stuff about that stuff.


So what does "structural" really mean? Looking at all these examples, it seems to mean "stuff I can't directly show you, but which I'm pretty sure isn't going to go away or change any time soon." So basically, "structural" = "stable" + "unobservable". Structure is the man behind the curtain. Does that sound right?

Except for structural integration, of course. I don't know how to fit that one in.

Friday, January 09, 2015

Sci-jacking



I love it when we get a new word to describe an annoying behavior that has existed for a long time without a name. For example, I loved it when "sealioning" became the term for persistent, annoying demands that people defend their opinions with evidence.

For a long time I've been annoyed by the practice of political movements trying to co-opt branches of science for their own ends. This is less common in the physical sciences, because they rarely have policy implications (though you do see plenty of politics-based science denialism, which is a different thing). In social science, you have lots of implications for policy, and so you get a lot more political movements trying to hijack branches of social science.

Let's call this practice "sci-jacking." (I like this term for a number of reasons.)

One good example of sci-jacking is the field of anthropology, which, as far as I can tell, was long ago eaten up by leftist activism. Sociology seems to have fallen prey to a bit of this as well, though less than anthro.

Economics, of course, is a prime target for sci-jackers. It deals with money, and money is what most people want out of policy. It is more directly connected to policy than anthropology or even sociology.

There are some people who try to sci-jack econ for leftist ends. They are mostly laughable, and they don't have any success, as far as I can see. Econ - especially pop econ - has swung a lot to the left in the last couple of decades, but as far as I can tell that movement came entirely from within, not from any external movement. Left-leaning economists utterly avoid the quasi-Marxist thinking and language and activist ritual that is endemic to anthropology. 

A much more serious attempt at sci-jacking economics comes from the right. This is natural, since the right wants free markets (well, in most ways), and econ treats free markets as natural outcomes. Just as an ecologist would assume that an ecosystem is working fine unless there were something obviously going wrong, economists tend to assume that markets are working OK unless there is obviously something the matter. The basic results in economic theory that say that "markets are good," although expressed in terms of voluntary exchange, utility maximization, etc., are really just formalizations of this naturalistic assumption. 

That makes econ very attractive to rightists - at least, rightists of the libertarian, free-market kind, if not always the traditional-values crowd. A whole movement of quasi-economists emerged after World War 2, whose main purpose seems to be conflating economic science with right-wing politics. In other words, there has been a sustained attempt to sci-jack econ from the right.

If you don't believe me, read the Wikipedia article on the Mont Pelerin society:
In 1947, 36 scholars, mostly economists, with some historians and philosophers, were invited by Professor Friedrich Hayek to meet to discuss the state, and possible fate of classical liberalism. He wanted to discuss how to combat the “state ascendancy and Marxist or Keynesian planning [that was] sweeping the globe”...The Mont Pelerin Society aimed to “facilitate an exchange of ideas between like-minded scholars in the hope of strengthening the principles and practice of a free society and to study the workings, virtues, and defects of market-oriented economic systems.”... 
The society has become part of an international think-tank movement; Hayek used it as a forum to encourage members such as Antony Fisher to pursue the think-tank route. Fisher has established the Institute of Economic Affairs (IEA) in London during 1955, the Heritage Foundation in Washington, D.C., in 1973; the Manhattan Institute for Policy Research in New York City in 1977; and the Atlas Economic Research Foundation in 1981. The Atlas Foundation supports a wide network of think-tanks, including the Fraser Institute.
I especially love this little gem at the end:
In 2006, libertarian theorist and Austrian School economist Hans-Hermann Hoppe founded The Property and Freedom Society as a reaction against what he perceived to be the Mont Pelerin Society's drift towards "socialism." Hoppe stated that individuals, whom he did not identify, had been "skeptical concerning the Mont Pelerin Society from the beginning" in 1947. He said that Ludwig von Mises had doubted as to whether "a society filled with certified state-interventionists" could pursue libertarian ideals.
The only appropriate response to this is: "Heh." 

As you might have realized by now, a big chunk of this movement - though not all of it, by any means - goes by the name of "the Austrian School". The "Austrian School" is mostly made up of quasi-economists, who reject the techniques of mainstream econ. They especially reject math and empiricism - naturally, because those techniques might at some point lead to a conclusion that does not fit with their political goals. They instead embrace something they call "praxeology," which is a complex system of language whose entire purpose and function is to disguise the fact that it has absolutely no substantive content. It is very reminiscent of the Derrida-based "critical theory" common in literature departments. 

Austrians (I'm going to drop the quotes, with all apologies to people from the very lovely country of Austria) claim to follow in the footsteps of their great thinkers, Ludwig von Mises, Friedrich Hayek, and Carl Menger. In fact, all the good ideas (and some of the bad ideas) of those thinkers have already been incorporated into mainstream economics. The Austrian "school" is no longer a school.

Now, there are some self-described Austrians who do not perfectly fit the description above - they have partially embraced the methods of mainstream economics. But this seems like saying that because not all self-described communists believe in pure orthodox Marxism, communism is no longer to be identified with Marxism. "Austrians for mainstream economic methods" sounds to me a little bit like "Jews for Jesus."

Actually this post began as a response to a blog post by Peter Boettke (one of the aforementioned Austrians who deviates from the pure praxeological orthodoxy). I had argued in a Bloomberg View post that economics - especially pop econ - is shifting to the political left.  Boettke says no, actually, econ has always leaned to the left. To not lean to the left, of course, you have to be an Austrian or equivalent free-market activist. This is a natural thing for Boettke to argue, since political movements always like to portray themselves as rebels. 

So the post doesn't really need much of a response. (Though I thought it was funny that Boettke cited Elinor Ostrom, who studied institutions and collective management of the commons, and Vernon Smith, who did the original Bubble Experiments, as "more market oriented thinkers". Just had to get that dig in there.)

The broader point is that the effort to sci-jack econ for conservative purposes is losing force, losing momentum, losing energy, and possibly losing other physics quantities as well. When you have Krugman and Piketty and Sachs and Stiglitz as the face of the profession instead of Friedman and Hayek and Art Laffer, the winds have shifted. Boettke's argument - basically, "even the conservatives were never conservative enough for my tastes" - doesn't change that fact.

But an even broader point is that econ has always resisted being sci-jacked. Studies find that political bias exists, but is small in size. If you've spent much time in an econ department, you know this - economists generally bend over backward to avoid the appearance of politicization. It's impossible, of course, to completely expunge politics from one's opinions and priors and basic beliefs, but economists, in the main, seem to have done an admirable job of staying as politically neutral as humanly possible. Even Milton Friedman, who was a member of the Mont Pelerin society and the most prominent conservative activist in the profession, made an attempt to separate his assessment of the facts from his own opinions and desires. And the "leftward shift" I talked about in my BV article has been more pronounced in the public sphere - in academia, the shift has been only minor and muted, because any earlier rightward tilt was also only minor and muted.

In other words, econ was never in danger of falling prey to sci-jackers, the way anthropology has. The sci-jackers made a lot of noise and established a lot of think tanks and coined a lot of buzzwords, but their assault broke on the walls of academic objectivity. I think econ deserves a lot of credit for that fact.


Update: Chris Dillow has a good complimentary piece on why econ doesn't need "heterodox" methods to arrive at liberal policy conclusions. Econ's relatively strong resistance to political sci-jacking is not inconsistent with its recent leftward turn.

Thursday, January 08, 2015

Lion Dog, Panda Dog

Back in 2013, a Chinese zoo tried to pass off a dog as a lion:

Screen Shot 2013-08-16 at 10.39.59 AM

Most observers laughed, but not Scott Sumner! To Scott, the Lion Dog was a signal of good days ahead for the Chinese economy:
I’m disgusted with the Western media, the way they keep picking on China.  Henan is a poor, heavily polluted inland province of 90 million people.  So what if the lion at their zoo looks a bit dog-like... 
That shows why the China bears are oh so wrong.  No country with that level of creativity, that enthusiasm to “git er done” will ever get stuck in a middle income trap.
Convincing, no?

Now, it's worth asking whether Sumner is also bullish on Italy, in the light of the following news:
An Italian circus is facing possible criminal charges for allegedly trying to deceive the audience with two chow chows painted to resemble pandas. 
Police in the city of Brescia confiscated the white chow chows on Dec. 19 from the Orfei Circus and accused the staff of painting black patches on them in hopes the customers would believe the pups were actually pandas.
Here is Panda Dog:



Obvious, this shows that, just like China, Italy has "that creativity, that enthusiasm to 'git er done'," and we can expect the Italy Bears to be proven wrong...right? Obviously, Italy's rising unemployment and stagnant growth is only a brief pause on that country's upward, march, right?

Good thing development forecasting is so easy, right?

Japan's fertility rate is rising, and you all missed it



Today's Bat Boy Award for crazy blogging goes to Ana Swanson of the Washington Post!

The headline cries: "Japan's birth rate problem is way worse than anyone imagined". The article cites a paper by some Waseda economists, which is all about inflation and deflation, and really has nothing to do with the ostensible point of the WaPo piece. The citation of the paper is really just an excuse to show the following graph:


This is supposed to be one of those charts that shows how the government keeps getting its forecasts wrong. Swanson writes:
The data above...shows just how bad Japan has been at forecasting its fertility rate since 1965. Government projections have been almost comically wrong, as the government repeatedly interpreted the sharp decrease in the fertility rate as a temporary dip rather than a sustained trend.
Except that is not what the graph shows at all. Yes, government forecasts are way off (forecasting is hard). But for over a decade, the Japanese government has been too pessimistic about the fertility rate.

Just Look. At. The. Graph! Since 2005, the black line - the actual fertility rate - has been going up! It is now higher than the blue line representing the forecast from 2002. It is even higher than the blue like representing the forecast for 2008. The graph only looks like it goes through 2010, but a quick Google shows that the fertility rate is still over 1.4, i.e. higher than the 2002, 2006, or 2012 forecasts.

In other words, Japanese fertility has been surprising on the upside for ten years and counting!

People have been tweeting this graph, and the incorrect conclusion, all day. Didn't anyone even bother to take a look at this graph before declaring that it shows the opposite of what it actually shows? Was this just an opportunity to harp on a standard news headline - Japanese people aren't having kids, Japan is dying, etc. etc. - with the graph as just an excuse to re-up the news one more time?? Bat Boy is not pleased! Ana Swanson, our policy is to forgive all crazy blog posts (we all do them from time to time), but you must repent and say fifty Hail BatBoys. Conrad Hackett and everyone else who tweeted it without looking, you get a Bat Boy runner-up ribbon, and you are required to say twenty Our BatBoys.

More importantly, when are people going to start writing news articles pointing out that Japan's fertility is on the rise?

Maybe I better do it.

Wednesday, December 31, 2014

What can be done about the gender problem in economics?



A little while ago, I wrote a Bloomberg View article highlighting some research showing that the economics profession is more biased against women than are the natural sciences or the other social sciences. Following that article, I received quite a number of emails agreeing with what I wrote, and offering opinions about what can be done.

By far the most common suggestion was just to raise awareness of the problem. The modal comment was something along the lines of "I never realized there was a gender problem in econ, but recently I've started noticing it more and more." That is very encouraging. The more economists realize that something is fishy, the more they will act to counter it in their daily lives.

Raising awareness can be done at the individual level and at the official level. Regarding individual-level awareness, Frances Woolley has a great blog post on the subject:
"Sexism" is not the result of some high level conspiracy. It is the product of millions of every day actions by thousands of ordinary people...  
[A] scholars's reputation and impact is determined by the decisions of others: who they choose to acknowledge, who they choose to network with. Every single active academic can, through the citation and other decisions they make every day, influence other academics' reputations - and thus the probability that they will receive tenure or get promoted.   
Who do you cite? If you're like most people, you're more likely to cite the seminal work of some well-known male academic than the work of a female scholar... 
Do you give women credit for their ideas? Just about every woman has had the experience of sitting in a committee, saying something, and having her contribution ignored. A man will then restate her point, and he is listened to, and receives credit for the idea... 
How do you word your letters of reference? Do you use the same adjectives to describe women and men? Or are women delightful, pleasant, conscientious and hard-working while men are strong, original, insightful and persistent? 
Who do you invite to present at conferences or departmental seminars? If a man, do you turn down invitations to participate in conferences with all-male line-ups (see the gendered conference campaign)? Do you make it easy for female colleagues to come for a drink in the bar after a seminar by corralling them into the bar-going group?  
The economics profession is far from perfect...and the power to change it lies within every one of us.
Well said.

Woolley also points out some potential problems with Ginther and Kahn's research (which inspired my post). But that doesn't diminish the case for raising individual awareness in the way Woolley describes.

As for official awareness, things get trickier. As Woolley points out, it's the natural instinct of organizations like the AEA, universities, and journals to try to fight discrimination by giving women more responsibility. But in academia, responsibilities - like department chairs and committee memberships - are often detrimental to a professor's career rather than helpful.

A better way, in my opinion, is to strengthen and increase support for organizations designed to investigate and highlight the gender problem. The main such organization is the Committee for the Status of Women in the Economics Profession, an AEA committee. The AEA might, in the future, increase the committee's size and funding, or perhaps the number of paper sessions allocated to the committee. It also might promote the committee more prominently on its website and in the events at the annual meeting.

As for universities, more might follow the lead of Harvard, whose Task Force on Women Faculty put out an interesting report in 2005 (the link is courtesy of Anke Kessler, head of the Canadian Women Economists Network).

How can journals help? Well, they can invite some publications by top researchers on the subject of gender discrimination in econ. As Frances Woolley points out, Ginther and Kahn's paper leaves some stones un-turned. The more research there is on the topic, the more we will know about exactly where the problem lies.

A final player is the media at large. The media can help highlight the increasing contributions of female economists, instead of ignoring them.

The overall hope here is that gender discrimination in economics is like the Phillips Curve - that the more we believe in it, the more it goes away in reality. Ideally, everyone should do their part.


Update: Here is a piece in Quartz by Miles Kimball and an anonymous co-author, giving first-hand accounts of the culture of sexism in econ.

Sunday, December 28, 2014

Scott Sumner on taxes



Scott Sumner has a reply to a BV piece of mine in which I suggested that the labor disincentive effect of income taxation is relatively modest right now in the U.S.

Scott:
The required number of hours worked is itself endogenous.  In Europe, required yearly hours are less than in the US, due to higher taxes. 
This assertion might be true. If Scott has evidence to back up this claim, he does not present it in this post.

Scott:
Second, when you tax people, they are poorer, and they need to work more to maintain their standard of living. 
This is a common misconception that I see all the time.  There is no first order effect of taxes on national income, as the tax money gets recycled into the economy.  Now it’s true that the government might waste the tax money, leaving a country poorer, but in that case it would be more accurate to say that government waste causes people to work harder.  In modern economies most extra spending at the margin goes back in transfer programs.  Since national income doesn’t fall from the direct impact of taxes, there is only a substitution effect on labor supply, not an income effect.
Well, this would be a good point if taxes left income unchanged - in other words, if tax revenue was redistributed lump-sum to the people from whom it was extracted, as is the case in many economic models. However, if taxes represent income redistribution - as they often do in the U.S. - this is not the case, and we do need to think about income effects. In particular, our tax system is highly progressive - rich people pay most of the taxes, poor people get most of the services. Thus, if we want to think about whether taxes make the rich work less, we do need to think about income effects, contra Scott.

Scott:
You don’t want to use time series data, as there is a long-term downward trend in hours worked due to increasing affluence. 
Of course, but this does give you some general idea of how much we might increase labor supply (or fail to increase it) by cutting marginal tax rates. The long-term trend really seems to dominate. Of course, this by itself is not dispositive, but that's why I mentioned it.

Scott:
Lower income people face a much higher implicit MTR than in the 1950s and 1960s.
This is a good point, and I probably should have mentioned something about this in my article (I was focused on the idea of taxing the rich). Casey Mulligan has argued that implicit taxes (from benefit phase-outs) are high. Paul Krugman has also made this argument. I'd like to see more research on it, but it's a very important point, and one that is totally left out of the discussion in most U.S./Europe comparisons.

For a rundown of the relevant research on taxation and labor supply, see these fun slides. (hat tip to Claudia Sahm)

Tuesday, December 23, 2014

Time for gaijin to take a second look at Abe's Womenomics



If you follow Japan news, you know about Shinzo Abe's "Womenomics" program/meme. You also know that much of the Western press - especially the Japan-based Western ("gaijin") press - is startlingly vitriolic about the program.

Why? It's not that gaijin want to keep Japanese women in the kitchen - far from it. In fact, Westerners have been writing editorials about how Japan needs to be less sexist for many many years. So why are they so hostile now that Abe is actually trying to do what they've been urging Japanese leaders to do since forever?

Well, first some background. Shinzo Abe is a conservative - and not just a conservative, but a nationalist conservative, one of an outspoken minority of Japanese politicians who want Japan to stop obsessing about World War 2 and go back to being a strong military power. To some gaijin, this implicitly associates Abe with the pre-1945 fascist regime, and also with Japan's xenophobic feudal government back in the 1800s. They instinctively see Abe as part of a long Japanese tradition of anti-Westernism. Their greatest fear is that Abe is the leading edge of a wholesale revival of that tradition. They see Japan as a pendulum that swings back and forth between openness and xenophobia, and Abe's popularity seems like a sign that the pendulum is swinging back. If that happens, their very livelihoods are in trouble, and they could face social and/or official discrimination.

So if Abenomics succeeds, the thinking goes, Abe might be able to push Japan in a xenophobic direction. But that doesn't explain the particular venom many gaijin writers have toward the Womenomics part of the program. I have a hypothesis to explain this: Abe stole their issue.

You see this all the time in politics. Democrats gave Bush little to no credit for the Medicare expansion. Republicans gave Clinton little to no credit for scaling back welfare. And so on. When a leader of the Enemy Party does something you've long been calling for, the instinctual response is to A) discount it as tokenism, and then B) deride the Enemy Leader for engaging in tokenism.

A lot of Westerners went to Japan in the 1990s and 2000s, lured mostly by the explosion of Japanese pop culture. They have been banging the drum for women's equality for years and years, and seen Japanese feminists stonewalled by a seemingly impenetrable wall of conservative LDP politicians. Now along comes one of the most conservative LDP politicians of all, and suddenly he's talking up feminism? It must be a trick! And a dirty, cruel trick at that, designed to subvert the gender equality movement and give it false hope, etc. etc.

I see this kind of thinking a fair amount.

But here's the thing: gaijin/Westerners are not a unified bloc. Many disagree totally with the kind of thinking I've described. And these dissenters, who generally bear no particular love but also no particular animus toward the LDP, have started to realize that Womenomics, no matter what concrete policy changes come out of it, has fundamentally changed the game in Japan.

For example, here's Anthony Fensom in The Diplomat, quoting the excellent Devin Stewart:
Abe has announced a series of reforms to boost Womenomics, including ensuring sufficient childcare centers for 300,000 children by March 2020; requiring listed companies to disclose the number of female executives by March 2015; and reviewing the tax and social security system to ensure its neutrality toward women workers. 
“Together with other measures to facilitate women-friendly work places such as disseminating good practices and promoting disclosure of company information on female participation, the government aims to raise the employment rate of women (aged 25-44) from 68 percent (in 2012) to 73 percent in 2020 and to increase women occupying leading positions to 30 percent in 2020,” the government said in its growth strategy prepared for November’s G20 summit in Brisbane, Australia. 
The strategy also announced plans for the next Diet session to introduce “a new working hour system to break the link between wages and the length of time spent at work, while protecting workers’ health and achieving a better work-life balance,” as well as reviewing international best practice concerning labor disputes... 
[S]igns of progress have been seen in the corporate sector, with brokerage Nomura appointing this year its first woman trust bank head since 1945, and female directors now on the boards of the nation’s three megabanks. Women delivery drivers and construction workers are no longer a rare sight as Japan utilizes its formerly neglected labor resource, in preference to broad-scale immigration. 
Importantly, the government has flagged plans to abolish the current spousal tax deduction system, which offers tax deductions providing the low-income spouse’s salary does not exceed around 1 million yen a year. The system has been blamed for encouraging married women to stay out of the workforce, but according to the Yomiuri Shimbun, the reform will offer tax deductions to the spouse with the higher annual income, with no upper limit placed on their spouse’s income... 
Devin Stewart, Senior Fellow, Carnegie Council, told The Diplomat after a recent Japan visit that progress was apparent, including proposed moves by business lobby Keidanren pushing companies to publish action plans on women employment, immigration policies allowing more nannies, the deregulation of part-time workers beyond the three-year limit, and an increase in childcare leave benefits from 50 percent to 67 percent of initial salaries for both parents. 
“More women are working in the bureaucracy, and they are bringing about reform to the way Kasumigaseki [Japan’s government district] operates. A group of women who were selected to be trained for management training have created a network for change in Tokyo’s central government. In their spare time (often in pre-dawn hours), these women have put together a proposal for change titled, ‘Towards Sustainable Work Style: Proposals from Female Officials Working in the Japanese Central Government.’ Each ministry is now considering how to adopt their suggestions, such as reducing work hours and allowing workers to telecommute,” he said. 
“In the courts, there has been some progress for the protection of women workers. This fall, the Japanese Supreme Court overturned a Hiroshima court ruling about maternity harassment (also known as pregnancy discrimination) in violation of the equal employment act. The Supreme Court has ordered a re-trial– a victory for the plaintiff. It means Japan may start enforcing laws that protect women’s rights like this one, which has been in place since 1986.” 
Despite concerns over the planned female executive target – one analyst described it as potentially creating a small elite of “platinum kimonos” due to the lack of trained talent – Stewart said attitudes were changing. 
“We are witnessing a gradual, nascent feminization of the workplace in Japan, and this is a good change. It is coming from the necessity of a globalized market, a shrinking population, and via the innovations of entrepreneurs and other change-makers. Abe’s rhetoric in the past two years has helped to give this change some momentum,” he said... 
While critics suggest Womenomics will end with Abe’s departure, Stewart said a generational change by 2020 would ensure women’s empowerment “becomes the norm rather than a political buzzword.”
Even if Abe is a lone feminist figure in a party of sexist conservative old men, his rhetoric and his policies have changed something. For the first time, the Japanese establishment - the bureaucracy, big business, and the media - are on the side of women in the struggle for gender equality.

So the gaijin and Western writers who still see Womenomics as tokenism should wake up and realize that Something Is Different In Japan. And like it or not, it is different because of Shinzo Abe.

Monday, December 22, 2014

Commie commie commie commie commie K-Keynesian

Commies. Awesome printing on t-shirt. Credits to whoever made this..

Boy, do people like arguing over whether "Keyneisanism" is right or wrong.

I suspect that much of the motivation for John Cochrane to write this latest blast comes from his ongoing personal feud with Paul Krugman, generally acclaimed as the champion of "Keynesianism". Of course, the Wall Street Journal eats it up, since to most WSJ readers, "Keynesian" is a code-word for "commie" (thanks, Friedrich Hayek). The result of these two forces is an article which has a few good points buried deep inside it, but which is mostly wrong. 

No government is remotely likely to spend trillions of dollars or euros in the name of “stimulus,” financed by blowout borrowing.
Sure, but that's always true. Then when the crash comes, "everyone's a Keynesian in a foxhole," as Robert Lucas said. A few weeks later and everyone is back on the austerity bandwagon. This is a time-stationary process, dude. Fiscal stimulus ain't dead, it's pinin' for the fjords.
Keynesians told us that once interest rates got stuck at or near zero, economies would fall into a deflationary spiral. Deflation would lower demand, causing more deflation, and so on.
Well, that's a good point! Where IS the deflation? When you have to patch up a theory after every contrary fact, you get a degenerating research program. See also: Every other macroecnomics research program.
Our first big stimulus fell flat, leaving Keynesians to argue that the recession would have been worse otherwise. George Washington’s doctors probably argued that if they hadn’t bled him, he would have died faster.
By what measure did the stimulus "fall flat"? Arguing about macro counterfactuals may be a mug's game, but a Booth Business School survey of economists found that 92% thought the ARRA lowered the jobless rate. Check out the list. That's an awful lot of well-respected doctors saying bleeding worked. Maybe they're all wrong! I wouldn't be surprised, given how little we really understand macro.
With the 2013 sequester, Keynesians warned that reduced spending and the end of 99-week unemployment benefits would drive the economy back to recession. Instead, unemployment came down faster than expected, and growth returned, albeit modestly. The story is similar in the U.K.
But didn't a 3% sales tax hike send Japan spiraling into recession? Oh, the competing anecdotes! WHO DO I BELIEVE??
Keynesians forecast depression with the end of World War II spending. The U.S. got a boom.
Well, you know, except for that 12.7% fall in GDP in 1945.
The Phillips curve failed to understand inflation in the 1970s and its quick end in the 1980s, and disappeared in our recession as unemployment soared with steady inflation.
We'll always have Paris.
Hurricanes are good, rising oil prices are good, and ATMs are bad, we were advised: Destroying capital, lower productivity and costly oil will raise inflation and occasion government spending, which will stimulate output. Though Japan’s tsunami and oil shock gave it neither inflation nor stimulus, worriers are warning that the current oil price decline, a boon in the past, will kick off the dreaded deflationary spiral this time.
This is a good point! Liquidity trap models with all those paradoxes are hard to square with reality. though Japan's growth did certainly rise after the 2011 tsunami and has been rising faster than America's since, and they've switched from deflation to inflation, so that might not have been the best example. Generally natural disasters lead to a growth boom due to rebuilding, though you don't need a liquidity trap model to get that.
I suspect policy makers heard this, and said to themselves “That’s how you think the world works? Really?” And stopped listening to such policy advice.
Well I suspect policymakers would be caught dead in bed with Siamese twins before they'd open up a New Keynesian DSGE paper and try to work out its implications, but hey.
Keynesians tell us not to worry about huge debts
Except in, say, Krugman's paper with Eggertsson, which is all about how debt is baaaad. I guess Cochrane means government debt. But I have heard self-identified Keynesians say that government debt isn't as bad as private debt after a recession, and that governments should run deficits in busts and then do austerity in booms. Is that crazy?
Stimulus advocates: Can you bring yourselves to say that the Keystone XL pipeline, LNG export terminals, nuclear power plants and dams are infrastructure?
I bet they could...
Can you bring yourselves to mention that the Environmental Protection Agency makes it nearly impossible to build anything in the U.S.?
This is not necessarily a good point, but it is closely related to a very good point, which is that infrastructure costs are weirdly high in the U.S., and environmental review is part of that (but it's local NIMBY landowners, not the EPA).

...Wait, what did this have to do with Keynesians? Oh, yeah, I forgot. Commies, etc.
Now you like roads and bridges. Where were you during decades of opposition to every new road on grounds that they only encouraged suburban “sprawl”? If you repeat in your textbooks how defense spending saved the economy in World War II, why do you support defense cutbacks today? Why is “infrastructure” spending abstract or anecdotal, not a plan for actual, valuable, concrete projects that someone might object to?
COMMIES
Keynesians tell us that “sticky wages” are the big underlying economic problem. But why do they just repeat this story to justify inflation and stimulus? Why do they not advocate policies to undo minimum wages, labor laws, occupational licenses and other regulations that make wages stickier?
If I recall correctly, Keynesians think getting rid of sticky wages in the middle of a recession is bad. Also if I recall correctly, if you take sticky wages out of a New Keynesian model, you still get a recession when a bad demand shock hits, the recession just reduces people's hours instead of sending them into involuntary unemployment.
Inequality was fashionable this year. But no government in the foreseeable future is going to enact punitive wealth taxes.
Wait, how is this related to stabilization policy? Besides COMMIES, I mean.

So here is my assessment of Cochrane's column:

  1. New Keynesian models do indeed have lots of big holes in them. But most of the things Cochrane characterizes as "Keynesian" (now say that 10 times fast!) seem like things he read Krugman write in a blog post.
  2. I'm sure Cochrane does really, honestly believe that self-identified Keynesians are a bunch of, essentially, commies. Which means that when he says "Keynesians", he's not thinking of Bob Hall, Emi Nakamura, Jordi Gali, or Roger Farmer. But maybe he should.
  3. Cochrane really really really doesn't like Krugman. Krugman's name is never mentioned, but it's clear who this article is aimed at. The feud is getting out of hand!
  4. The WSJ editorial page readership seem mentally stuck in the 1970s. Or at least, some of them do. We live in a Malmendier & Nagel world.

For a more reasonable Cochrane discussion of fiscal stimulus, I recommend this 2012 blog post, and of course, Cochrane's paper on New Keynesian models.

Also: COMMIES!!!

Also: I stole the title of this blog post from @cellsatwork on Twitter, and I'm not sorry.

Saturday, December 20, 2014

Should theories be testable?



Lots of interesting philosophy-of-science arguments around the web these days.

In physics, there's an editorial in Nature complaining about string theory - and especially the "string theory landscape" - isn't falsifiable. (Personally I think the word "falsifiability" is a little silly, since it's just testability + strongish priors against your own hypothesis.) Brian Greene, a string theorist, has a response in Smithsonian magazine. On Twitter, Sean Carroll complains about the "falsifiability police". Personally, I think Chad Orzel has the best take on the whole thing. 

I don't see why we should insist that any theory be testable. After all, most of the things people are doing in math departments aren't testable, and no one complains about those, do they? I don't see why it should matter if people are doing math in a math department, a physics department, or an econ department. 

I think testability starts to matter when you start thinking about applying theories to the real world. This is why I get annoyed when people ignore the evidence in business cycle theory, but not when they do it in pure theory. 

Suppose you're studying the properties of repeated games. Who cares if those games represent anything that really exists today? They might represent something we might implement with algorithms somewhere in the future. Or even if not, it's fun (i.e. valuable) to just know a bunch of cool stuff about how concepts fit together (i.e. math). The same is true about the kind of abstract "math of value functions" stuff that Miles Kimball taught me in grad school.

But when you start making models that claim to be about some specific real thing (e.g. monetary policy), you're implying that you think those models should be applied. And then, it seems important to me to have some connection to real data, to tell if the theory is a good one to use, or a crappy one to use. That's testability.

Anyway, this sort of seems very college-freshman-dorm-discussion-level when I write it out like this, but I think there are a surprising number of people who don't seem to agree with it...

Elsewhere, Kevin Bryan has a post up about "minimal model explanations" in economics, which basically echoes Friedman's "methodology of positive economics". Brad DeLong links to an Itzhak Gilboa paper about economic models as analogies. Moises Macias Bustos informs me that the Stanford Encyclopedia of Philosophy has updated its entry on "scientific explanation". And Robert Waldmann reminds me of this interesting post, in which he argues that Friedman's ideas and Lucas' ideas about economic methodology are mutually contradictory.


Update: I think it's worth pointing out once again that purely mathematical theories, which don't describe any pre-existing phenomenon (and hence are not "testable"), can be useful.

A good example is the Stable Matching Theory developed by Al Roth and Lloyd Shapley. When this theory was developed, it didn't describe anything that existed in the world. So you couldn't go out and test it. It was obvious that it "worked", in the sense that you could program computers that implemented it. That was trivial. You could know that just from working out the math. So this theory, when it was made, wasn't a "testable" theory like General Relativity. But then, eventually, people came up with a way to use Stable Matching Theory for assigning organ transplants. And it worked really well. So it turned out to be useful.

Now look at a lot of the stuff people are doing in math departments. How much of that stuff will eventually be useful? The answer is "We don't know, and we can't know." In 1896, in a letter discussing the new theory of vectors, Lord Kelvin - one of history's greatest physicists - said "'[V]ector' is a useless survival...and has never been of the slightest use to any creature." To put it mildly, he was extremely wrong.

So abstract, mathematical "theories" that can't be tested like science theories can still be useful. And we can't know which of them will be useful in the future. And it's cheap and harmless to have people sit around and work on those things. And I can't see how it matters whether those people are in math departments, or physics departments, or econ departments, or computer science departments, or statistics departments, or applied math departments, etc.

But as soon as people start saying - or even implying - that their theories describe real phenomena, then the ball game changes.

Tuesday, December 16, 2014

Cultural liberalism is about personal responsibility



"We have the best patients in the world because of jail."
     - Raul, Venezuelan diplomat, "Parks and Recreation"


More culture-blogging. Sorry, econo-nerds.

A couple posts back, I talked about the Liberal Marriage Hypothesis, which says that liberal values - gender equality, cooperative parenting, etc. - are actually strengthening traditional marriage instead of weakening it.

Now we have some evidence for the Liberal Drug Hypothesis:
[S]urvey results released today [find[ that the use of cigarettes, alcohol, and prescription painkillers among teens have all declined in the past year, consistent with an overall downward trend for the past few years... 
The majority of high school seniors currently do not think occasional marijuana smoking is harmful, with only 16.4 percent saying occasional use puts the user at "great risk," compared to 27.4 percent five years ago. Eighty-one percent of high school seniors told researchers this year that marijuana is easy for them to get. 
In other words, pot is readily available, in some cases legal to have, and kids don't think it's harmful. Yet they aren't using more of it. 
Which leads us to a law of teenagers that has held constant across all generations: Things are only cool as long as they're dangerous and forbidden.
This is the old idea that alcohol abuse is less common if kids are allowed to drink as soon as they're "old enough to see over the bar," as in Europe and Japan.

Derek Thompson, who wrote the above article, thinks that this is about the peculiar psychology of teenagers - that that which is forbidden is cool. But it might be something more general. It might be about two ways of getting people to do the right thing - personal responsibility vs. social censure.

Under a social censure model, punishment is communally imposed to get people to avoid unhealthy behaviors, such as drugs and broken families.

Under a personal responsibility model, people are educated about the risks and dangers, and told that it is incumbent upon them to avoid doing the bad stuff.

It seems to me that social conservatives endorse the former approach - using shame, monetary penalties, jail, and other punishments to enforce healthy behavior. In contrast, liberals (and some libertarians) endorse the latter approach - using education to teach people about the consequences of unhealthy behavior, but avoiding the use of external punishment, and then leaving people to decide how best to live their own lives.

Of course, this is a huge generalization, but I think you see this dynamic at work in the case of marriage and the case of drugs. The "secret traditionalism" of upper-class liberals is no secret. It is simply the outcome of the repeated quiet exercise of personal responsibility. It is what happens when you frame family choices as individual choices instead of communal imperatives - people do the healthy thing, but they don't preach it.

Social conservatives, in my experience, often tend to argue that the lower classes of society are not smart enough to handle personal responsibility. They seem to argue, in effect, that lower-class people are stuck at Piaget's "concrete operational stage" - thinking in terms of rigid rules - while upper-class people are able to move on to the more abstract "formal operational" stage. In other words, they don't trust the masses to do the right thing if given freedom from punishment.

Now, if that sounds like a straw man, well, good, because I am not a big fan of that idea, and I hope it's more rare than it seems. But I suspect you'll find at least hints and threads of this idea throughout the arguments of many social conservatives.

So that leaves the question: If personal responsibility works better than social censure, why? Does the universality of censure free people from feelings of guilt and shame over their secret violations? Do people think "it isn't cheating if you don't get caught"? Does punishment trick people into forgetting about natural consequences by making them focus only on externally imposed consequences?

This seems like a question for psychologists. So if any psychologists want to show up and point me to the relevant research, please do.

In the meantime, at the aggregate level we now have a bit of circumstantial evidence favoring the liberal, health-and-responsibility-based approach over the conservative, punishment-and-censure-based approach on both marriage and drug use.


Update: Commenter TWY points me to this interesting experiment.

Update 2: Also, this.

Monday, December 15, 2014

The Agrarian Revolt



Roger Farmer used to have a blogging style that was a bit...abstruse.

Well, no more.

Here is Farmer on the "All models are wrong" dodge:
I have lost count of the number of times I have heard students and faculty repeat the idea in seminars, that “all models are wrong”. This aphorism, attributed to George Box,  is the battle cry  of the Minnesota calibrator... 
Of course all models are wrong. That is trivially true: it is the definition of a model. But the cry  has been used for three decades to poke fun at attempts to use serious econometric methods to analyze time series data.
For good measure, he includes the following picture, which I am just going to steal because it's so awesome:




And here is Farmer on the Real Business Cyclists:
Time series methods were inconvenient to the nascent Real Business Cycle Program that Ed pioneered because the models that he favored were, and still are, overwhelmingly rejected by the facts. That is inconvenient. 
Ed’s response was pure genius. If the model and the data are in conflict, the data must be wrong...His response was not only to reformulate the theory, but also to reformulate the way in which that theory was to be judged. In a puff of calibrator’s smoke, the history of time series econometrics was relegated to the dustbin of history...
And here is Farmer on the H-P Filter:
How did Ed achieve this remarkable feat of prestidigitation? First, he argued that we should focus on a small subset of the properties of the data... 
Ed argued that the trends  in time series are a nuisance if we are interested in understanding business cycles... 
After removing trends, Ed was left with the wiggles. He proposed that we should evaluate our economic theories of business cycles by how well they explain co-movements among the wiggles. When his theory failed to clear the 8ft hurdle of the Olympic high jump, he lowered the bar to 5ft and persuaded us all that leaping over this high school bar was a success.
And here is Farmer on the whole dang post-RBC trend-and-cycle macro paradigm:
By accepting the neo-classical synthesis, Keynesian economists had agreed to play by real business cycle rules. They both accepted that the economy is a self-stabilizing system that, left to itself, would gravitate back to the unique natural rate of unemployment. And for this reason, the Keynesians agreed to play by Ed’s rules. They filtered the data and set the bar at the high school level. 
We don't have to play by Ed's rules. We can use the methods developed by Rob Engle and Clive Granger as I have done here. Once we allow aggregate demand to influence permanently the unemployment rate, the data do not look kindly on either real business cycle models or on the new-Keynesian approach. It's time to get serious about macroeconomic science and put back the Olympic bar.
Dang, Farmer is breathing fire!! This brings me back to the good ol' days of 2011, when the Macro Wars raged in blog-land...



Anyway, Farmer seems totally right about the arbitrariness of the H-P filter and the very very very low height of the empirical hurdle represented by calibration + moment-matching.

It's also very interesting to see someone finally standing up for the idea of non-self-correcting recessions. The whole idea that "trend" and "cycle" are totally independent phenomena always seemed kind of bogus to me, especially in light of evidence like the Mankiw & Campbell "unit root in GDP" paper.

But here's the really cool thing about Farmer's attack on standard macro: it's coming from a real live macroeconomist. Most macro-bloggers I know of are either outsiders (Krugman, DeLong, etc.) or insiders who defend the dominant paradigm (Williamson, House, Wren-Lewis sort of), or nice folks who don't generally get in blogfights (Kimball). It's highly unusual to see a high-level, respected business cycle theorist come out swinging against the conventional macro wisdom.

Anyway, I'll be excited to see who responds!

Saturday, December 13, 2014

Ross Douthat ponders the Liberal Marriage Hypothesis



Over the last few years, an unsettling thought has been worming its way into the consciousness of cultural conservatives: What if liberal values are the key to saving marriage?

In the 1980s, this would have been a preposterous question. Everyone knew that liberalism stood for sexual license, single motherhood, and disregard for traditional institutions. To ask if liberalism was the salvation of marriage was like asking if smoking cured cancer. But slowly, people started to realize that working-class people, who are most likely to profess traditional values, are increasingly the least likely to actually live them. Meanwhile, the educated upper middle class, after experimenting with divorce and single parenthood in the 70s and 80s, went back to traditional marriage, while continuing to espouse a belief in gender equality and other liberal ideals.

A scary idea began to dawn on conservatives: What if they had marriage entirely backward?

In a column entitled "The Imitation of Marriage," Ross Douthat nicely sums up this uncomfortable hypothesis:
Many optimistic liberals believe...that what needs to be imitated most are the most socially progressive elements of the new upper class’s way of life: delayed marriage preceded by romantic experimentation, more-interchangeable roles for men and women in breadwinning and child rearing, a more emotionally open and egalitarian approach to marriage and parenting. 
The core idea here is that working-class men, in particular, need to let go of a particular image of masculinity — the silent, disciplined provider, the churchgoing paterfamilias — that no longer suits the times. Instead, they need to become more comfortable as part-time homemakers, as emotionally available soul mates, and they need to raise their children to be more adaptive and expressive, to prepare them for a knowledge-based, constantly-in-flux economy. 
Like most powerful ideas, this argument is founded on real truths. For Americans of every social class, the future of marriage will be more egalitarian, with more shared burdens and blurrier divisions of labor, or it will not be at all. And the broad patterns of upper-class family life do prepare children for knowledge-based work in ways that working-class family life does not. (emphasis mine)
Douthat clearly understands the Liberal Marriage Hypothesis, and he appears to be warming to the idea. As a proponent of the hypothesis, I see this as a very good sign!

But the ship of ideology does not turn on a dime. Like a socialist reluctant to realize that revolution is bad for the workers, Douthat continues to struggle against full acceptance of the LMH:
But the idea that progressive attitudes can save working-class marriages also has some real problems...it underestimates the effective social conservatism of the upper-class model of family life...Notwithstanding their more egalitarian attitudes, for instance, college-educated households still tend to have male primary breadwinners: As the University of Virginia’s Brad Wilcox points out, college-educated husbands and fathers earn about 70 percent of their family’s income on average, about the same percentage as working-class married couples.
The difference, of course, is that under conservative gender roles, the 30% that women earn is an unpleasant necessity. Traditional masculinity tells husbands to be ashamed of that 30% - "What, you can only put 70% of the bread on the table?" I suspect that shame can break apart a marriage, driving a man to leave his wife in order to find his missing masculinity in other activities.

Douthat continues:
Meanwhile, as cohabitation and churchgoing trends suggest, many working-class Americans — men very much included — have gone further in embracing progressive models of identity and behavior than many realize, and reaped relatively little reward for that embrace... 
[T]he Johns Hopkins sociologist Andrew Cherlin cites research suggesting that many working-class men, far from being trapped in an antique paradigm of “restricted emotional language,” have actually thrown themselves into therapeutic, “spiritual but not religious” questing, substituting Oprah-esque self-help for more traditional forms of self-conceiving and belonging.
As evidence goes, this is fairly weak. The quantitative evidence presented by Charles Murray in Coming Apart - that working-class people are more likely to espouse traditional values and less likely to live them - is not in imminent danger of being turned on its head by these anecdotes.

Finally, Douthat suggests his alternative to the Liberal Marriage Hypothesis:
We may have a culture in which the working class is encouraged to imitate what are sold as key upper-class values — sexual permissiveness and self-fashioning, spirituality and emotivism — when really the upper class is also held together by a kind of secret traditionalism, without whose binding power family life ends up coming apart even faster.
This would be very convenient for a traditionalist who didn't want to have to change his view of reality very much! But how is this supposed to work? Who is "selling" these values to the working class? And why are the working class falling for the trick, instead of seeing the "secret traditionalism" of the upper class, or figuring it out for themselves (as the upper class presumably did)?

It sort of sounds like a version of what many traditionalist conservatives say when I bring up the LMH. In one form or another, they tell me that liberalism only works for smart people. Not-so-smart people, they tell me, need simple rules and guidelines, and guiding institutions like churches, in order to live safe, clean, successful, moral, industrious lives. You can't just give them total social freedom and license and let them figure it all out for themselves, the traditionalists tell me.

Well, maybe that's true. Or maybe - and here I am being an incorrigible optimist - it just takes the working class a little more time. Maybe the upper class are the first to encounter new social forces, the first to hop on new social trends, and therefore the first to figure out how to adapt those trends to their needs. Maybe the working class is doing now what the educated class did in the 1970s and 1980s - responding to the advent of the service economy by adopting more equal gender roles. Maybe more-equal gender roles always have the initial effect of disrupting marriage. But maybe working-class people will eventually do the same thing educated people did - realize that, gender roles or no, marriage is a better bet than the alternative.

In other words, maybe what conservatives should be doing is not fighting the transition tooth and nail, but helping speed it through its inevitable Act 2, to its ultimate denouement - the reestablishment of marriage in a new, stronger form.

Fortunately, it looks like we've at least begun the process of convincing Ross Douthat.

Wednesday, December 10, 2014

Krugman-Cochrane feud is getting out of hand



On one hand, a spectacular feud between two really smart academics is pretty entertaining. In biology there was Richard Dawkins vs. Stephen J. Gould. In nanotech there was Richard Smalley vs. Eric Drexler. In econ there have been a few - Keynes vs. Hayek, the Cambridge capital controversy, Summers vs. Prescott - but in terms of (academic cred) * (importance of issue) * (acrimony), I'm not sure any of them tops Paul Krugman vs. John Cochrane.

Both of these guys are top-flight economists, though interestingly neither one did his main work in business-cycle theory - Krugman is a trade guy, Cochrane a finance guy, each undeniably at the top of his field. Each one has written a paper about the macro of "liquidity traps" in the years since the crisis - Krugman's is here, Cochrane's is here. Their debate has been running for five years now. It began with this Krugman op-ed and this Cochrane response, The argument is over two main issues: A) whether academic macro has run off the rails over the last 30-35 years, and B) whether fiscal stimulus a good idea.

Here are some of Krugman's salvos, here are some of Cochrane's salvos. There are a lot of salvos.

One interesting feature of the dispute is that it has been carried out entirely over blogs. Debate between economists seems to be disappearing from the journals, so maybe blogs are stepping in to fill the void.

The latest salvo shows that the dispute has not really died down, either in the level of disagreement or the acrimonious tone. Here is Krugman, and here is Cochrane. These posts get quite aggro (a slang term my generation invented meaning "aggravated and aggressive"), so I won't quote excerpts.

Anyway, like I said, there is a certain fun in watching Godzilla and King Kong go at it...from a distance. But I think this particular feud is getting out of hand. The acrimony doesn't actually help get to the bottom of the issues at hand - it just provides spectacle.

The fact is, blogs are not that great a medium for resolving issues like this. There's a lot of pressure for rapid response, which means not many equations or data analysis gets put into the posts - that biases blog fights toward ambiguous rhetoric and fights over who-said-what. Additionally, everyone sounds meaner and more aggressive over the internet than they really are.

Having met both Krugman and Cochrane, I don't doubt that if they got in the same room with each other - with a whiteboard and internet access and some other profs in the room to provide comments - and talked about and debated this issue for a day or so, they could resolve a lot of their differences. They have different thinking styles - Krugman is more of the classic economist, thinking in terms of toy models and stylized facts, while Cochrane is more data-oriented and probably prefers a more fully-specified model. But both are reasonable people, and very smart people (duh), and although they wouldn't walk out of the room agreeing on everything, I bet a substantial chunk of the distance between the two would be removed, and - more importantly - a lot of the acrimony would be reduced.

Hopefully this can be arranged at some point. Titanic feuds are fun, but eventually the fun wears off and all that is left is the bitterness.