Thursday, August 28, 2014

Thursday Roundup, 8/28/2014

Ride em, cowblogs!

Me on BV

1. Japan needs the hammer of private equity to smash the rotting edifice of corporate inefficiency

2. RBC models: The null hypothesis that there is no business cycle

3. Let's make sure not to discriminate against Chinese-Americans if we go to war with China

4. In which I cast doubt on a study about marriage

5. Economics is neither science nor literature, but a third intellectual culture

6. Different groups are treated differently under the law in America

From Around the Econ Blogosphere

1. Acemoglu and Robinson think that people want central governments to protect people from local bullies. Libertarians, take note. Speaking of libertarians, it turns out that many American "libertarians" don't hold very libertarian beliefs.

2. Cathy O'Neil on why the Fields Medal is st00pid. She is correct. And by "correct" I mean "I agree". Also see Frances Coppola on why we give too much respect to Nobelists relative to other scholars.

3. Surveys claim to have found that Americans are a lot more conformist, and less individualistic, than Europeans. Hive minds, indeed.

4. Kevin Grier unleashes a hellacious rhetorical slap at Market Monetarism. OUCH OUCH OUCH

5. Tim Harford: Are monopolies quietly taking over our economy? Unsettling.

6. A well-known econ blog commenter gives a list of reasons not to believe Shiller's CAPE-based warnings about an overpriced stock market.

7. Scott Sumner claims that the switch to true fiat money (post-Bretton Woods) was the mother of all black swans. But he's wrong: Nassim Taleb is the mother of all black swans. See, I just called Nassim Taleb a girl, ha ha ha.

8. John Cochrane says the Fed has mostly done the right thing since the financial crisis. John Taylor's head just exploded. But his hair, curiously, is intact.

9. Michael Strain of AEI argues that we need better infrastructure. If conservatives really jump on this bandwagon, then I say it's morning in America.

10. A great list of quotes by economists dissing economics. It's not clear if they're just talking about macro, though.

11. Is active management dying? Sometimes these days it feels like the whole finance industry is a non-pressurized balloon with a hole in the side, slowly losing air. If so, will that hold down the salaries of econ profs, for whom the finance industry is one of the main outside options? But this question would take us too far afield.

12. Dan McFadden might be my favorite economist. Watch him give a talk about decision-making. Then bow before his awesome awesome-itude.

13. Tyler Cowen says that the way economists measure "trends" and "cycles" has some major problems. Tyler Cowen is quite correct. And by "correct" I mean "the data seem to agree".

14. Tim Harford: 4% inflation target 4% inflation target 4% inflation target 4% inflation target 4% inflation target 4% inflation target 4% inflation target 4% inflation target 4% inflation target...oh dash it all, we'll never get a 4% inflation target.

15. All MMT people should watch Chris Sims talk about how he thinks money and inflation work. Also, all MMT people should dress in gold spandex and throw tomatoes at cars while playing "She Loves You" by the Beatles on kazoos and doing a little bow-legged jig.

16. Josh Brown talks about how the toughest part of being a financial adviser is helping people curb their behavioral biases. Even harder than drinking liquid magma while wrestling a python.

17. Mark Buchanan asks why economists are so obsessed with the Arrow-Debreu result. My answer: Because a cabal of gynecologists and realtors has been secretly promoting Arrow-Debreu since the end of World War 2.

18. Bob Murphy thinks Scott Sumner is using the EMH like a just-so story to "explain" anything he sees in financial markets. Bob Murphy, perhaps a bit uncharacteristically, makes a really good point.

19. Are red-light cameras a form of tax farming? I wouldn't have asked that question if I didn't think the answer was "yes"...

20. Cardiff Garcia summarizes, and dares to gently critique, Autor's Jackson Hole paper.


  1. I see what you did there.

  2. Anonymous1:23 AM


    You keep track of those Dark Enlightenment/HBD folks. Would you happen to know if some of them staged an attempt to remove "racist" from showing up with the names of their heroes in Google search?

    E.g., try doing a Google search for people like Steve Sailer, Gregory Cochran, Richard Lynn, Philippe Rushton, Michael Anissimov, et al.

    All of those people are obvious racists and I know that "racist" was among the first matches when you typed in their names, but now it's all mysteriously gone. Are their supporters attempting to whitewash their image?

  3. Anonymous5:14 AM

    On 15. Chris Sims and fiscal theory of price level. Anyone have list of his citations from the later session he mentions? I would be interested to see exactly which papers his talk is based on.

    1. John Cochrane has a working paper - Monetary Policy With Interest On Reserves. It is recent, and it is fairly straightfoward by the standards of the DSGE literature.

  4. Your article on the "third intellectual culture" of economics is very good. There is a "science" that is pretty similar to economics in the way it uses data and math to predict human behavior: box office predictions. It's less complex than economics but the standard operating procedure is very much alike. Just look at an analysis like this one:
    Box office predictors use past relationships, a couple of significant indicators and the current values of variables to predict human behavior. Things like opening weekend box office, CinemaScore (the grade of the movie given by the audience), the genre, age and sex of the intended audience and the actual audience, are all used to predict how successful the movie is going to be. Of course, you will never get everything completely right, but you have a model and it works pretty well. And the best thing: no ideological conflicts!

  5. Noah, as a dude living in Japan (but not bowling) I'll have to just, you know, kind of disagree with you. If you look at people being hired into companies now, not a one of them is feeling like they have guaranteed lifetime employment. The system is already rigged against younger employees, the majority of whom are contractual workers sweating it from year to year. I'm not sure how changing the legal code to make it easier to fire someone (basically aligning the way companies actually work now with the way companies are supposed to work) will unleash much of anythingside from a giant moan of, "how luck my parents generation were." a giant moan of, "how luck my parents' generation were."

  6. Re: Economics is neither science nor literature
    Let's see: economics is less nerdy than science and less insightful of deep motives than art: sort of like understanding the interaction of eighth-grade math with short-term decision making: very much like in fact like playing poker. :-)

  7. Anonymous1:28 PM

    "But his hair, curiously, is intact." That was a ROTFL line, but I only LOL'd.

  8. It sounds like there are Nobel prizes to be won by finding less onerous sufficient conditions for Arrow Debreu - or by proving that the Arrow Debreu conditions are necessary.

    1. Anonymous3:15 PM

      You don't seem to understand what an Arrow-Debreu equilibrium is.

    2. I take the linked article at face value when it says:

      However, the conditions of the Arrow-Debreu theorem are highly restrictive. For instance, Arrow and Debreu assume perfectly competitive markets (allbuyers and sellers have perfect information, no buyer or seller is big enough to influence prices), and separate markets for different locations (butter in Chicago is a different market than butter in Sydney). So far, this isn’t all that unusual a set of requirements in econ-land.

      But then we get to the doozies. The authors further assume forward markets (meaning you can not only buy butter now, but contract to buy or sell butter in Singapore for two and a half years from now) for every commodity and every contingent market for every time period in all places, meaning till the end of time! In other words, you could hedge anything, such as the odds you will be ten minutes late to your 4:00 P.M.meeting three weeks from Tuesday. And everyone has perfect foreknowledge of all future periods. In other words, you know everything your unborn descendants six generations from now will be up to.

      My comment follows from those statements. If those are the assumptions used to prove that markets clear then there is work to be done re-examining those assumptions.

    3. Anonymous1:02 AM

      Heaps of work was done on it during the 60s, 70s, the 80s, and in some sense continuing through to today. The Arrow-Debreu conditions have essentially been proven to be necessary (perfect competition, complete asset markets, perfect information, etc.) (eg. related to perfect info see grossman & stiglitz (1980)). People also looked at a lot of related concepts like recursive economies and the 'core' (rather than pareto optimality which is what Arrow-Debreu is about), or for a rather different spin Rubinstein's - Equilibrium in the Jungle.

      Economics has since moved on to thinking about second-best equilibria, constrained optimality, and beyond.

      Nobels like Akerlof, Spence, Stiglitz, Kydland, Prescott, Mirrlees, Lucas, Allais, and Coase could all be roughly viewed as falling into this kind of line of work.

  9. Anonymous4:18 PM

    Those are not "the assumptions used to prove that markets clear." The language you have here is also not quite right: there is no question of "proving that markets clear." It is an equilibrium condition that you must impose once you've assumed that all parties take prices as given. (otherwise they would not take prices as given-there'd be no guarantee that they could make the purchases you modeled them as assuming they'd be able to)

    And so, if all agents in a system of markets (even one missing various markets as above) are to take all prices as given, all markets they operate in have to clear.

    The issue is then that of *existence*--i.e. under what conditions do prices exist that, if taken as given, would clear markets?

    And the answer is: under a huge variety of them including, as relevant here, when all kinds of markets imagined in the baseline arrow-debreu model are missing. Existence of market clearing prices has nothing to do with the "completeness" of the set of markets. (see Magill and Quinzii's fat book on incomplete markets).

    Hope this helps.

  10. This comment has been removed by the author.

  11. Second attempt (the first was rendered incomprehensible by Apple, so I deleted it.)

    McFadden's lecture was amazing. I livetweeted it, and was then sent links to lots of academic papers on neuroeconomics. Apparently there was a neuroeconomics conference in Italy in June.

  12. Monopolies are only quietly taking over the economy if you are not paying attention. Back in the 90s we actually worried about things like IBM's and Microsoft's market power. Since then, we have Facebook, Twitter, Google, we allowed banks to buy other banks and get bigger, and a whole host of other companies in niches with network externalities. We have Fannie/Freddie. And, I never understand why we talk about corporate oligopolies and not rent-seeking labor monopolies, as in public sector unions.

    The list of billionaires, from Bloomberg to Ellison, reads more like a list of new-age monopolists whose companies enjoy network externalities. Ineffective Teachers and corrupt correctional officers are nearly impossible to fire, even when said correctional officers are having babies with inmates (true!).

    And then we wonder about inequality. Or why Facebook can get away with human experiments on it's users.

  13. Anonymous11:17 AM

    On #15: please for the sake of us non economists provide a brief statement of your view of the accuracy or otherwise of Mr. Sims' talk. I need to have some clue what I'm listening for. Thanks.

  14. Unanimous8:49 AM

    I guess I'm an MMT person, and I watched Chris Sims' talk. If you send a gold spandex jump suit and a kazoo, I think I can scrounge up some tomatoes. A bold and brassy rendition of such a classic joyful song would be a fitting expression of my joy at seeing such a validation of MMT theory. Perhaps the song should be "We are the Champions" by Queen, it would go better with the spandex. What do you think?