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February 2018

Should-Read: When I think of the Committee for a Responsible Federal Budget, I think of its Maya MacGuineas telling me in 2009-10 that they had to repeatedly and enthusiastically praise the best-performing deficit-hawk Republican—then Senator Voinovich—in order to keep lines of communication open, and give Republicans incentive to do better. Perhaps it is time for CRFB to make a public acknowledgement that, ex post at least, this strategy was not so smart? That one was not so reality-based in the past is a strong reason to do a frank and open retrospective, if only to keep one from being not so reality-based in the future: Paul Krugman: Budgets, Bad Faith and ‘Balance’: "my anger is... directed at... enablers, the professional centrists, both-sides pundits, and news organizations that spent years refusing to acknowledge that the modern G.O.P. is what it so clearly is...

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Should-Read: What you see depends on where you look from. I would not say that economics has covered itself with glory in taking a true 360-degree view of the situation. And Bridget has put her finger on one reason why: Bridget Ansel: The gender gap in economics has ramifications far beyond the ivory tower: "Given the extent to which every individual’s life is intertwined with the economy...

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Should-Read: "Switzerland yoked to Spain" was what one Eurocrat said about England and Wales. Me? I think the City of London should expand its boundaries beyond the Roman walls, and reactivate its Hanseatic agreements with Hamburg and company: Daniel Thomas: London life proves hard to give up for Brexit relocations: "Brexit.... Some of the most important conversations were... but in the kitchens and living rooms of those learning their fates in the first wave of company relocations...

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Should-Read: Another good paper on the costs of a strong dollar policy. It is one thing if (as in the 1990s) the strong dollar and the consequent downward pressure on (some) tradable manufacturing is a result of high investment spending in the United States. In those cases the bad effects are cushioned by higher productivity in nontradeables and in sectors of emerging comparative advantage. It is quite another if the decline in investment and manufacturing spring from increased deficits. No, this is not the fiscal expansion we were waiting for: Doug Campbell: Relative Prices, Hysteresis, and the Decline of American Manufacturing: "This study uses new measures of real exchange rates to study the collapse of US manufacturing employment in the early 2000s in historical and international perspective...

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Live from the Grove of Cognitive Philosophy Academe: Horsing around by reading the very wise and clever Scott Aaronson: The Ghost in the Quantum Turing Machine, instead of doing work this morning, has led me to be thunderstruck by an excellent insight of his: Newcomb's Problem is, in its essentials, the same as the problem of Self-Locating Belief, and the solution by Adam Elga: Defeating Dr. Evil with Self-Locating Belief makes as much sense as a solution of one as the other. (I think it makes enormous sense as a solution to both, but YMMV.) As Scott puts it:

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Live from Spooky Action at a Distance: Question: Don't decoherent branches of an Everettian wave function recohere every time somebody runs a quantum eraser? In what sense is testing the existence of decohered states "hopelessly impractical"? Sean Carroll: Beyond Falsifiability: Normal Science in a Multiverse: "(3) There exist tests that are possible to do within the laws of physics, but are hopelessly impractical...

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Should-Read: An entertaining rant from Doug Campbell. I wonder what triggered this? It is certainly true that the abstract of Acemoglu, Johnson and Robinson (2001), "Reversal of Fortune: Geography and the Making of the Modern Income Distribution" is simply wrong where it says "countries... that were relatively rich in 1500 are now relatively poor": they should have written "countries... that were densely populated and relatively urbanized in 1500—and thus had done well either because of geographic advantages or because of successful matching of technology to environment—are now relatively poor". "Rich" is the wrong word for, as Doug correctly points out, Malthusian model reasons. It is marriage patterns (and, to some degree, vulnerability to epidemics and violence) that determines whether those people still alive to consume in the old days were relatively rich or poor: Doug Campbell: On the Uses (and Abuses) of Economath: The Malthusian Models: "The first year of an Econ Ph.D. feels much more like entering a Ph.D. in solving mathematical models by hand than it does with learning economics...

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Should-Read: If the Federal Reserve's 2%/year PCE (2.5%/year CPI) inflation target were appropriate, there would no be only a weak case for the proposition that the Federal Reserve is following an inappropriately tight monetary policy. Unfortunately, the Federal Reserve's current inflation target is not appropriate: the zero lower bound, and the Federal Reserve's limited power and willingness to do "what it takes" at the zero lower bound, means that a 2%/year PCE inflation target is almost surely inappropriately low. It runs enormous risks of prolonged, deep recession for no countervailing gain. Hence even with today's inflation number, I still say that there is a strong case for the proposition that the Federal Reserve is following an inappropriately tight monetary policy: Katia Dmitrieva: U.S. Consumer Prices Top Forecasts, Sending Markets Tumbling: "Core gauge advances 0.3% from prior month, above projections. Apparel index rises 1.7%, most in almost three decades...

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Live from the Orange-Haired Baboon Cage: Trump is meaner in rhetoric than the orthodox Republicans, but not meaner than them in their lack of concern for the well-being of Americans: Jonathan Chait: Obama’s Gone, So Republicans Stopped Sabotaging the Economy: "During the Obama era, Democrats frequently believed, but only rarely uttered aloud in official forums, that the Republican Party was engaged in economic sabotage...

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Comment of the Day: RW: Disrupting Education: "'Will we ever create tech (even for a few subjects) that will work as well as good one-on-one tutoring?'...

...That already has been done in a limited, skill-building way; e.g., Kahn Academy as noted in the root ms of this thread. But teaching is more complicated than that; e.g., developing the abilities of groups of students who are not your own children or even your own tribe introduces wrinkles even before you get the question of what kinds of abilities the students might consider most valuable. Tech can't be about teaching (yet) and if it is to be about tutoring at more complex levels it needs to emphasize tech's strengths rather than attempting to emulate teachers; i.e., what computers do best is exhaustive data traversal and rules-based analysis.

NB: Years ago I had a discussion with some folks developing a biochemistry program at UCLA that involved tracking each student's steps in solving a problem set and generated a report showing the path each student took. This was not constrained to achieving the correct answer or even just the number of steps it took. The program conducted a path analysis and one of the report elements was how 'splayed' the path appeared; that is, did the path reveal a tighter pattern suggestive of conceptual understanding or did it suggest the student was following leads in unprofitable directions, not intuitively sure of where the answer might lie. Not sure where that program wound up but it seemed like the right idea to me: let the computer do what it does best then let the teacher do what they do best.

"In the last analysis, we must come to the inevitable conclusion that education can be imparted only by a teacher and not wholly by a method ... Just as a water tank can be filled only with water and fire can be kindled with fire, life can be inspired with life ... However it may be, we want a human being in every sphere of our life. The mere pill of a method instead shall not bring us salvation." –Rabindranath Tagore


Should-Read: Our fearless leader Heather Boushey has a piece in the New Republic on why there are so many fewer female economists in America than one would expect. The thing that strikes me most comes from following Heather's link to Bayer and Rouse: "gender-neutral policies to stop the tenure clock for new parents substantially reduce female tenure rates while substantially increasing male tenure rates..." A man who has a kid and stops the tenure clock for a year has many sleepless nights and has an extra year to polish journal submissions. A woman has those, and also has nine months growing a human being inside of her and three years eating for two. The two experiences are simply not analogous. Treating them as if they are is anti-female discrimination—in effect, if not in intent: Heather Boushey: Gaps in the Market: "it’s not about the math. Women account for more than 40 percent of undergraduate math majors...

...At this year’s annual economics conference, a number of scholars presented papers examining why there are so few women in economics and what we can do about it. A recent working paper by the University of North Carolina’s Anusha Chari and Paul Goldsmith-Pinkham of the New York Federal Reserve even found that the overall share of women participating in a prestigious annual economics conference hasn’t improved in over 15 years. But the profession has been slow to deliver real fixes. One reason for this may be that economists are predisposed to believe discrimination is nonsensical. Standard economic theory tells us that firms—and people—who favor one group over another irrespective of their productivity will be driven out by market competition....

Because the process is so market-driven, the question that economists need to ask is whether gender and racial bias in the profession indicates something more troubling about economics itself.... If the market for economists isn’t efficient, what market is? Amanda Bayer and Cecilia Elena Rouse tackled this issue in their 2016 article in the Journal of Economic Perspectives. They argue that “the social science discipline of economics will be strengthened if it is built on a broader segment of the population,” and outline steps the profession could take to address the problem. Some of these are simple, such as changing the way we teach undergraduate economics, and some will require more work, such as providing better early career support and breaking down implicit bias in the profession.... For any profession—but particularly for an academic discipline that describes itself as scientific—to reject its own core findings is stupid at best, deeply hypocritical at worst. This is the profession that established the fact that labor-market discrimination contributes to lower productivity, lower economic growth, and lower wage growth. Of all people, economists cannot fail to address discrimination in our own ranks...


Noise Trading, Bubbles, and Excess Stock Market Volatility: Hoisted from the Archives from 2013

Noise Trading, Bubbles, and Excess Stock Market Volatility: Hoisted from the Archives from 2013: Noah Smith has a very nice post this morning:

Noah Smith: Risk premia or behavioral craziness?:

John Cochrane is quite critical of Robert Shiller.... He... thinks that Shiller is trying to make finance less quantitative and more literary (I somehow doubt this, given that Shiller is first and foremost an econometrician, and not that literary of a guy).

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Reading: Robert Allen (2009): The British Industrial Revolution in Global Perspective

Robert Allen (2009): The British Industrial Revolution in Global Perspective | <http://amzn.to/2mR3bKX>

Start with the mysterious "Pseudoerasmus": Random thoughts on critiques of Allen’s theory of the Industrial Revolution:

I love the work of Robert Allen... steel... the Soviet Union... English agriculture. And his little book on global economic history—is there a greater marvel of illuminating concision than that?... His point of departure is always the very concrete reasons that a firm or an industry or a country is more productive than another. I’m not rubbishing institutions or culture as explanations—I’m just saying, Allen’s virtue is to start with problems of production first. Yet I always find myself in the peculiar position of loving his work like a fan-girl and disagreeing with so much of it. In particular, I’m sceptical of his theory of the Industrial Revolution.

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Thomas Jefferson: "I Tremble for My Country..."

Jefferson memorial statue Google Search

Live from Monticello: Human rationality can be thought of in three ways: as rational beings, as rational_izing_ beings, and as debating beings who reach rough consensus and are much smarter collectively than they were individually. One of the attractions—in the sense that we find ourselves compelled to register, wrestle with, admire, and loathe him whether we will or no—of Thomas Jefferson is that he was outsized and gigantic in all three of these aspects: Thomas Jefferson (1981): Notes on the State of Virginia, Query XVIII: Manners: "It is difficult to determine on the standard by which the manners of a nation may be tried, whether catholic, or particular.... It is more difficult for a native to bring to that standard the manners of his own nation, familiarized to him by habit. There must doubtless be an unhappy influence on the manners of our people produced by the existence of slavery among us...

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Should-Read: We are giving away a huge amount of fiscal space that we will in all likelihood very much want in the future, we are giving our income distribution another whack in a destructive direction, and we are getting very, very little in the way of effective economic stimulus for it. Neil Irwin of the Upshot may say that "this is the fiscal stimulus the left has been asking for". That is false. He is totally wrong here: Paul Krugman: How Big a Bang for Trump’s Buck?: "I’m having a hard time figuring out exactly how big a stimulus we’re looking at...

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Live from Rant Central: Charlie Stross has had it with you people—those of you people who abandon worldbuilding and the exploration of possible human civilizations different from ours in the future direction for spectacle, and warmed over Napoleonic or WWII stories in fancy future dress: Charlie Stross: Why I barely read SF these days: "Storytelling is about humanity and its endless introspective quest to understand its own existence and meaning...

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Should-Read: When it is optimal not to experiment but instead to order (what you think is) the best thing on the menu? It is optimal surprisingly often—or so says the best job-market paper I have read this year; Xiaosheng Mu, Annie Liang, and Vasilis Syrgkanis: Dynamic Information Acquisition from Multiple Sources: "Decision-makers often aggregate information across many sources, each of which provides relevant information...

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Why Low Inflation in the Global North Should Be No Surprise

Why_Low_Inflation_Is_No_Surprise

No Longer Fresh Over at Project Syndicate: Why Low Inflation in the Global North Should Be No Surprise: Late last summer the thoughtful and very sharp Nouriel Roubini used his space here at Project Syndicate to attribute the stubborn and, by many, unexpected persistence of low inflation in the Global North to "positive" (so-called, even though a number of them are on balance unwelcome) shocks to aggregate supply: Nouriel Roubini: The Mystery of the Missing Inflation:

The recent growth acceleration in the advanced economies would be expected to bring with it a pickup in inflation.... Yet core inflation has fallen.... Developed economies have been experiencing positive supply shocks.... The Fed has justified its decision to start normalizing rates... by arguing that the inflation-weakening supply-side shocks are temporary.... Central banks aren’t willing to give up on their formal 2% inflation target, [but] they are willing to prolong the timeline for achieving it...

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Donald Trump Is Playing to Lose: Live at Project Syndicate

Donald Trump Is Playing to Lose by J Bradford DeLong Project Syndicate

Live at Project Syndicate: Donald Trump Is Playing to Lose: America certainly has a different kind of president than what it is used to. What distinguishes Donald Trump from his predecessors is not just his temperament and generalized ignorance, but also his approach to policymaking. Consider Bill Clinton, who in 1992 was, like Trump, elected without a majority of voters. Once in office, Clinton appealed to the left with fiscal-stimulus and health-care bills (both unsuccessful), but also tacked center with a pro-growth deficit-reduction bill. He appealed to the center right by concluding the North American Free Trade Agreement (NAFTA), which had been conceived under his Republican predecessors; and by signing a major crime bill. And he reappointed the conservative stalwart Alan Greenspan to chair the US Federal Reserve. Clinton hoped to achieve three things with this “triangulation” strategy... READ MOAR at Project Syndicate


When Globalization is Public Enemy Number One: No Longer Fresh at the Milken Institute Review

Globalization over the centuries

*Milken Institute Review: When Globalization is Public Enemy Number One: The first 30 years after World War II saw the recovery and reintegration of the world economy (the “Thirty Glorious Years,” in the words of French economist Jean Fourastié). Yet after a troubled decade — one in which oil shocks, inflation, near-depression and asset bubbles temporarily left us demoralized — the subsequent 23 years (1984-2007) of perky growth and stable prices were even more impressive as far as the growth of the world's median income were concerned.

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Should-Read: I have never found prioritizing fairness to be difficult. I am not a God. I do not know everything. An honest process to aggregate all of our perspectives and information will do much better than I would. So the first priority is to make the process more honest—always. Convincing people that my current views are correct takes second place. But to make the process more honest requires calling out dishonesty but not disagreement. Is distinguishing between the two hard? In my experience, not terribly: Jacob Levy: The Weight of the Words: "The business of prioritizing procedural norms, the rule of law, alternation in power, and electoral fairness is psychologically difficult...

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Should-Read: Is "smart money" in the business of making money by leaning against noise traders? Or is "smart money" in the business of making money by figuring out when information about fundamentals is slowly diffusing through the marketplace to fundamentals-based investors? Why, you may ask, if "smart money" is smart doesn't it simply determine fundamental values, and then buy and hold? The reason is that "smart money" are actually smart managers who need to show a return in the short term. Thus betting against noise traders and front-running information diffusion are the only strategies that promise to do that. Provided you can tell the time to do one from the time to do the other, that is: Dan Davies (2009): Capital Decimation Partners: "Another thing falling into the category 'jolly useful things I learned at London Business School...

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Should-Read: It could have gone so much easier with more reflation in Germany. A one percent per year German inflation target is no way to run a railroad for general prosperity: Paul Krugman: Notes on European Recovery: "Since 201,,, we’ve seen significant growth in Europe, with the fastest growth occurring in the areas (other than Greece) that were hardest hit by the euro crisis, especially Spain...

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Should-Read: More economist self-flagellation and self-justification. I kinda think the discussion would be healthier if it recognized, as Samuel Jackson says in Pulp Fiction: "The path of the righteous man is beset on all sides by the inequities of the selfish and the tyranny of evil men...": Dan Davies, Simon Wren-Lewis, and Policy Sketchbook: "Saying nothing about the importance of financial linkages and imbalances because they didn't know they were there does not exactly get the profession off the hook!!!":

@dsquareddigest: A very large proportion of the economics profession should have said "our models are clearly inadequate so we will work hard on improving our understanding, in the meantime please listen to this small subset of us who appear to have been right".

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Should-Read: Ima gonna archive this to jeer at in the future! Yes. BitCoin is a bubble. It is a mania of irrational crowds. It is not a financial market that is serving as a rational social calculating mechanism. It is not a market in which prices are being set by rational von Neumann optimizing agents. It is not even a market with short-selling constraints in which rational speculators are exploiting a non-rational herd: John Cochrane: The Grumpy Economist: Bitcoin and Bubbles: "So, what's up with Bitcoin? Is it a 'bubble?' A mania of irrational crowds?...

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Should-Read: That the minority of academic economists who opposed fiscal stimulus from 2009-2011 were able to carry the day in the public sphere from 2010 on is a deep indictment of the economics profession—but more so of journalism, IMHO at least: Simon Wren-Lewis: Academic knowledge about economic policy is not just another opinion: "Why don’t we look at what has happened since the financial crisis...

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Live from the Orange-Haired Baboon Cage: America is resisting Trump’s authoritarian and ethnic grievance onslaught. The rural south, Midwest, and mountain and desert west is not. And those who resist it are being read out of the Republican Party. Max Boot is a little too optimistic here: Max Boot: America is resisting Trump’s onslaught. Just don’t get cocky: "if Trump ruled in Italy in the 1920s, Argentina in the 1950s or Venezuela in the 2000s, he would undoubtedly be a dictator by now...

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Should-Read: There are many jobs the disabled could do. But they are almost always not their old pre-disability jobs. Anyone who wants to "fix" SSDI needs to think very long and hard about how to match newly disabled people who can no longer do their old jobs with new types of jobs they could do. And, no, Rand Paul's back does not really hurt. Nor is he anxious: Dylan Matthews: In defense of Social Security Disability Insurance: "When Americans get too sick or injured to work, this program helps them survive...

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Should-Read: I think the estimable Jared Bernstein is just wrong here, for reasons he knows—and in fact sets out in the "caveat" section of his post: Jared Bernstein: The new asymmetric risk: "Given that we cannot confidently assert that we are at full employment or full capacity... this hyper-Keynesian experiment is worth undertaking...

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Should-Read: Suppression of Black votes is an old American tradition. Suspicion of the wrong kind of non-Black votes is not. Yet that seems to be where the increasing numbers of Trumpublicans are going: it seems to be a central European or Latin American idea, not an American one: Jonathan Chait: Conservatives and the Cult of Trump: "Senator Orrin Hatch declared in December, 'We’re going to make this the greatest presidency that we’ve seen, not only in generations, but maybe ever'...

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Should-Read: We more-or-less understand how to teach people to perform a single analytical task just beyond their current competence, or demonstrate basic background familiarity with a situation—hence the disruptive success of Kahn Academy in the tutoring disruption business. But otherwise? How should we "disrupt" higher education as a whole? We need to understand why what we do here works, to the extent that it does. And we really do not: Kenneth Rogoff: When Will Tech Disrupt Higher Education?: "Universities and colleges are pivotal to the future of our societies...

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