Thursday, March 01, 2012

Thursday Roundup (3/1/2012)

Blogging's been sparse lately. Here's some Thursday links to feed your Noahddiction:

1. Barry Ritzholtz reminds us that liquidity in financial markets can actually be a bad thing. On a somewhat related note, John Cochrane points out that high-frequency trading is a zero-sum game.

2. Steve Williamson explains the two main ways that financial crises fit into economic models: A) as amplifiers of shocks, or B) as generators of multiple equilibria. Naturally, both things could be important at the same time.

3. Steve Randy Waldmann reminds us that unit labor costs have been falling, not rising, in most rich countries, including almost all European countries, and in particular have been converging across Europe (as basic theory would predict). This weakens the argument of those who claim that high union-driven labor costs are the cause of Europe's woes. It also provides support for the notion of factor price equalization - the thesis that the stagnation in rich-world incomes is due to the massive China Labor Dumb of 2000-present.

4. Steve Williamson gives some arguments in favor of the auto bailouts.

5. The Incidental Economist reminds us of an important fact from first-year microeconomics: Although the First Welfare Theorem says that (under certain conditions) free markets are efficient, the Second Welfare Theorem says that (under only slightly more restrictive conditions), redistribution is efficient too! So before you use the Welfare Theorems as a justification for free markets, remember that. (H/T Thoma).

6. Menzie Chinn points out that government purchases - i.e., the government actually spending money on stuff - have been going down, not up. What has been going up are transfer payments. Attention conservatives: "Shift resources from transfers to public investment" is a better position than "Cut taxes no matter what."

7. Simon Wren-Lewis argues that even if the macroeconomy does not contain emergent properties, aggregate models with no microfoundations can be preferable to models with microfoundations, since different sets of microfoundations can produce the same aggregate behavior. But he admits that chucking microfoundations is a very dangerous thing to do, and I agree.

8. Here's Wren-Lewis again, with an explanation of why the "LM" in "IS-LM" should be ditched. The argument is probably familiar to anyone who has taken an intro grad macro class.

9. Karl Smith claims that the rich-world investment drought is not about "stagnation," it's about "deindustrialization." Tyler Cowen politely coughs his throat and points out that those are, um, the same thing. Cowen win.

10. Finally, here is an absolutely righteous takedown of Jagdish Bhagwati by the perspicacious Peter Dorman, who is rapidly usurping my rightful place as the sheriff of the econ blogosphere. He's out-pinioning Noahpinion!


  1. De-industrialization and stagnation are not the same thing.

    If we shut down large capital intensive steel mills with smaller cheaper more efficient mills we are not stagnating.

    If we shut down dirty steel mills and switch to clean hi-tech and service industries we may be de-industrializing but we are not necessarily stagnating.

  2. On (5) - that's not an important fact. The Arrow-Debreu model describes no possible economy and one should refuse to draw any practical political conclusions from the first and second welfare theorems.

  3. S.R. Waldman. One n not 2. You will guess that I make the opposite correction more often. Also I am flattered by the error

  4. This comment has been removed by the author.

  5. it's as you had a considerably more fantastic saturday and sunday than my personal! haya ha, we invested the idea learning for finals. ughhh.
    wonderful weblog, mind you!