Thursday, February 23, 2012

Thursday Roundup (2/23/2012)

Almost forgot it was Thursday!

Hmm, some of my comments on these links are getting rather long. What do y'all think...should I start doing a bunch of mini-posts, or stick to long infrequent posts?

1. Barry Ritzholtz explains why trying to be an active investor without a supercomputer and a staff of trained finance professionals is a mug's game. Remember: Friends don't let friends day-trade.

2. Simon Wren-Lewis says what few are willing to say publicly: that macroeconomic arguments are really thinly veiled arguments about income redistribution. Is he right? I don't know. I'm a cynic, so I'll say "probably, a lot of the time."

3. Felix Salmon points out that tying company's fortunes to their short-term stock performance tends to destroy them. Very true. Remember that stock prices display excess volatility. Tying a company's fate (or the pay of an executive) directly to its stock price introduces a bunch of noise into the outcome of who lives and who dies (or who gets paid a lot and who gets paid a little).

4. Mark Thoma excerpts some recent NBER research on the importance of manufacturing. Interesting stuff. However, don't expect this to convince Ryan Avent.

5.  Steve Williamson flags and summarizes some very interesting research on chained transactions. I've been thinking about this in the context of counterparty risk for a long time, and I'm considering getting in on this research program.

6. Two Paul Krugman posts remind us why our intuition says fiscal stimulus works: A) GDP often seems to go up during wars, even though the things being produced are mostly destroyed, and B) cutting spending seems to deepen recessions. These are two big reasons that macroeconomists keep trying to make models in which stimulus works, even though the profession has not made it easy for them to make those models.

7. Brad DeLong flags a Larry Ball paper on hysteresis and unemployment. Very worrying stuff.

8.  Econ debate of the week: Arnold Kling says that if the output gap is negative, we should be seeing deflation. Ryan Avent says that no, low inflation by itself is enough to indicate a negative output gap. I tentatively score this debate Kling 1, Avent 1, which is just to say that I don't think anyone understands inflation dynamics well enough to know who's right here. If hysteresis is having a big effect, it helps Kling's argument.

9. Scott Sumner has a great post on why we should increase immigration from China.

10. Nick Rowe thinks we should stop thinking about money as a store of value, since all goods can be stores of value. But I think this is not right...since money can (under normal circumstances) be used to buy any good, we can expect the price of money to be less volatile than the price of any good. As a store of value, money gives you a real rate of return of -inflation (unless people ditch the currency for outside money), while any consumption good gives you a real return of -depreciation + change in relative price. Hence, I feel like money has special value as a passive investment vehicle...

11. And last but not least, Maria Popova discusses how to think like a scientist. Everyone should read this article, especially economists...


  1. Anonymous1:47 PM


    Ignoring for a moment that consumption goods are not a store of value (or at least, to the extent that they are they should be classified as capital assets), how do you earn a a real rate of -inflation holding the consumption basket? The real price of the consumption basket grows at a rate of zero, and the nominal return is +inflation.

    And why would you hold money over tbills as an investment? Holding money is for criminals and tax evaders.


  2. how do you earn a a real rate of -inflation holding the consumption basket?

    Ah, you're right, that made a typo. Fixed.

    And why would you hold money over tbills as an investment?

    A) Liquidity, and B) different behavior under a default scenario. Mostly liquidity. And yes that is "medium of exchange" not "store of value". But Nick was asking why money is special relative to consumption goods as a store of value.

  3. Hey Noah...I'm guessing you don't RSS subscribe to either the Bleeding Heart Libertarian blog or the Crooked Timber Liberal blog?

    Over at the Crooked Timber Liberal blog they are going pretty crazy go nuts over David Graeber's book on Debt. Figured if you subscribed to their blog you'd include at least one link to all the hoopla.

  4. "Never change a winning team" - just keep your posts as they are. It's always a pleasure to read them (especially your thursday roundup!).

  5. The kidney chain and the credit chain are two entirely different problems and trying to apply insights from one to the other will not take you very far.

    The basic difference is that portfolios of debt are diversified and fungible while kidneys are not.

    The network structure of debt obligations and vulnerabilities in that network are worthwhile areas for research but the kidney exchange paradigm will not help you.

  6. Anonymous5:08 PM

    Noah: "any consumption good gives you a real return of -depreciation + change in relative price"

    Still don't agree :-)

    Depreciation results from earned convenience yield, i.e. consumed services. Those constitute real returns. So the real return is just change in relative price. As a store of value though, you'd have to rent it out to get that return. 

    PS I can't read your captchas.


  7. K -

    I believe you are incorrect...the proper comparison for holding money is holding (not consuming) consumption goods...the proper comparison for consuming (or renting out) consumption goods is spending money...

  8. Anonymous9:59 PM


    If a good is depreciating it must be yielding some benefit. Otherwise, why would it be worth more before and less later? It's worth more because it's expected to yield some consumption. E.g. a car depreciates as it yields transportation services. So a consumption good is really a capital good with a convenience yield. Only services aren't capital goods as they are instantly consumed and depreciated. A car will yield the real rate as a store of value, only if rented out for someone else to consume the transportation services. Otherwise it's a crappy store of value, paying off returns as services one might not value. But if held by the optimal consumer it yields the real rate of return.


  9. K -

    Think carefully about what I'm saying...


  10. o. nate3:15 PM

    Money's role as the medium of exchange gives it certain advantages as a store of value. Any other good can be a store of value, but before you can use it, you have to convert it to the medium of exchange. This can sometimes present non-trivial difficulties. So while money is not unique in functioning as a store of value, it has a unique advantage in that role.

  11. AWESOME operate. And also wonderful choice of tools to function... Fantastic!!