Grasping Reality on TypePad, by Brad DeLong

If real wages are not growing faster than productivity, we are not yet at full employment. We aren't: Matthew Yglesias: "I think it [a labor shortage] would be a good thing, but it’s also mostly fake. We had a labor shortage in 1999 and it was glorious. I think we’ll get there again. But not yet..." Josh Barro: 'Labor shortage' is good news for workers: "For now, the coming "labor shortage" is good news for workers. We should root for it to continue. It's undoubtedly a headache for some owners and managers. But it's one they should, hopefully, be made to live with for a few years..."

Seems to me I can think of many reasons why his friends would have told him this would not be a good book to write: Joe Patrice: Law School Professor Has New Murder Mystery: "Law professor who quit Twitter in a temper tantrum is back with a new book.... Earlier this year, the conservative Edmund Burke Society at the University of Chicago advertised an event to discuss whether or not immigrants were 'toilet people'...

I have a question for Stanford's Michael @McFaul ...

We know that "If the heritability of IQ were 0.5 and the degree of assortation in mating, m, were 0.2 (both reasonable, if only ballpark estimates), and if the genetic inheritance of IQ were the only mechanism accounting for intergenerational income transmission, then the intergenerational correlation of lifetime incomes would be 0.01..." (see Bowles and Giants (2002)). That is only two percent the observed intergenerational correlation—49/50 of the intergenerational transmission of status in America comes from other causes.

Why, then, is it important to invite to your campus to speak someone whose big thing is the intergenerational transmission of intelligence through genes, and racial differences thereof? And if one were going to invite to your campus to speak someone, etc., why would you pick somebody who likes to burn crosses? Wouldn't a healthier approach be to regard such a person—who focuses on the intergenerational transmission of intelligence through genes, harps on genetic roots of differences between "races", and likes to burn crosses—as we regard those who know a little too much about the muzzle velocities of the main cannon of the various models of the Nazi Armored Battlewagon Version 4?: Jonathan Marks: Who wants Charles Murray to speak, and why?: "The Bell Curve cited literature from Mankind Quarterly, which no mainstream scholar cites, because it is an unscholarly racist journal... http://anthropomics2.blogspot.com/2017/04/who-wants-charles-murray-to-speak-and.html

If you take the appropriate measure of labor market tightness to be the prime-age employment rate, there is no wage growth puzzle. So why does the Federal Reserve take the unemployment rate as the relevant labor market tightness variable and wring its hands about the wage-growth puzzle, rather than taking the prime-age employment rate as its relevant labor market tightness variable? It is a mystery: Adam Ozimek: Wage growth is right on target folks!:

This point is absolutely cognitive science-statistics-philosophy of probability gold!: Judea Pearl, Madelyn Glymour, and Nicholas P. Jewell (2016): Causal Inference in Statistics: A Primer (New York: John Wiley & Sons: 978119186847) : "Inquisitive students may wonder why it is that dependencies associated with conditioning on a collider are so surprising to most people—as in, for example, the Monty Hall example. The reason is that humans tend to associate dependence with causation...

I messed this up the first time. And I apologize to Stefania. Let me see if I can fix it: The very sharp Stefanie Stantcheva gets trapped into linguistic quicksand, and disappears into the mire. Her Let me disagree with the very sharp Stefanie Stantcheva's statement that "it’s good to be clear... whether you are making an efficiency argument about the reaction to taxes or expressing a social value judgment..." is totally incoherent: so-called "efficiency" arguments rest on a social value judgment—that the existing distribution of wealth corresponds to utility and deservingness, so that reducing the areas of the economy's Harberger triangles would raise societal wellbeing, holding the distribution of wealth constant, while increasing the areas of the economy's Harberger triangles would raise societal wellbeing, holding the distribution of wealth constant. I think that is wrong: the Harberger triangles' changes go to and come from people with different marginal utilities of wealth. Thus whether the total of behavioral responses to balance-preserving fiscal interventions raise or reduce societal wealth, holding the distribution of wealth constant, hinges on who the Harberger triangles go to or come from. If the people they go to and come from do not have the same marginal utility of wealth, then:** "efficiency" can be inefficient.

And to claim the the current distribution of wealth corresponds to utility and deservingness ought to be a lie too big for anyone to swallow. **It's not anything Stefanie Stantcheva would ever say—rather the reverse—but it does implicitly underpin the belief that the sum-of-the-areas-of-the-economy's-Harberger-triangles is meaningful.

I think all these messes are potentially avoided by working in utility space rather than wealth space from teh get-go. But what do I know?

And, otherwise, her twitter thread is totally great: Stefanie Stantcheva: "Optimal Capital Taxation in 7 Tweets: "Simplifying a lot, but here is the core logic...

Josh Marshall: Future of TPM #1: "As a reader, here is what I would and do want: if there’s a new story from Alice Ollstein on one of the various family separation immigration court cases, it would be helpful to have the recent stories there too and perhaps a quick explanation of how they fit together...

I pity the poor global warming-denier fools who were deluded by Fox News and the Koch Brothers into ignoring—or pretending—not to notice that El Nino events temporarily boost measured global temperatures and volcanic eruptions temporarily retard it:

On second thought, I do not pity them: I pity the rest of us...

• Ann Marie Marciarille: David Slusky on The Impact of the Flint Water Crisis on Fertility: "K.U.'s David Slusky gave an interesting talk on "The Impact of the Flint Water Crisis on Fertility".  A 4.9% decrease in birth weight is hard to ignore...

• Austin Frakt: Reagan, Deregulation and America's Exceptional Rise in Health Care Costs: "Why did American health care costs start skyrocketing compared with those of other advanced nations starting in the early 1980s?...

So let me procrastinate some more this morning...

Let me riff off of something that crossed my desk last night: Emily Wilson's reflections on her translation of the Odyssey, and on the Odyssey itself. There is one passage that always has been, to me at least, horrifyingly freaky in a very bad way. As David Drake—one of my favorite science fiction and fantasy authors—puts it:

Odysseus caps his victory by slowly strangling–the process is described in some detail–the female servants who have been sleeping with Penelope’s suitors. This is only one example (although a pretty striking one) of normal behavior in an Iron Age culture which is unacceptable in a society that I (or anybody I want as a reader) would choose to live in... a hero with the worldview of a death camp guard...

Indeed:

Comment of the Day: Robert Waldmann: Cognitive Science, Behavioral Economics, and Finance: "There are two separate questions. One is "are markets efficient?", which means there always is no winning arbitrage strategy. The other is "is there an arbitrage strategy which will always work?"...

Michael D. Bordo: An Historical Perspective on the Quest for Financial Stability and the Monetary Policy Regime: "From 1880 to the present... the incidence, costs, and determinants of financial crises... combined with narratives...

It would be very good for me to understand this. At the moment I do not: Victor Chernozhukov et al.: [1608.00060] Double/Debiased Machine Learning for Treatment and Causal Parameters: "Most modern supervised statistical/machine learning (ML) methods are explicitly designed to solve prediction problems very well...

Robin Wigglesworth: Flat yield curve sends a grim message for investors in 2019: "investors are now starting quietly to fret that the US central bank may be on the brink of making a mistake, tightening monetary policy too aggressively in the face of a vulnerable global economy and still-quiescent inflationary forces. The Fed might get away with two hikes this year, but markets should worry about what might come in 2019..."

Emily R.C. Wilson: "After one of my recent 'Conversation' interviews (in Sydney), someone asked me if the hanging of the slave women in the Odyssey is 'right'...

...Summarizing my answer here on the recommendation of a friend, because it brings up a key distinction for thinking about any literary text. Literature 101: There are 3 separate questions intertwined:

What was really existing socialism, comrade?

This was really existing socialism:

Yen Ho: Our Handling of 'The Great Wind': "In the tasks of editing and publishing the poem, we were in error...

• Andrew Reeves: "A really, really good sign that someone has read neither Thucydides, Tacitus, Homer, nor Plato is when that person talks about how Greek and Roman literature teach us about the Greatness of the West...

• Dave Roberts: American white people really hate being called “white people”: "They want their America, the America where white dominance is so ubiquitous as to be unremarkable, back. They keep saying so.... Being judged and asked to justify itself, as so many subaltern groups are judged and asked to justify themselves, feels like an insult. If you doubt that, go read this Twitter thread."

• Jared Bernstein: [Trump did a bunch of stuff to strengthen the dollar; now he’s upset about the strengthening dollar(https://www.washingtonpost.com/news/posteverything/wp/2018/07/20/trump-did-a-bunch-of-stuff-to-strengthen-the-dollar-nows-hes-upset-about-the-strengthening-dollar/?noredirect=on&utmterm=.576fbc1e4803)_: "Trump is annoyed that the Fed is raising rates and that the stronger dollar is making our exports less competitive...

Andrew Reeves: "A really, really good sign that someone has read neither Thucydides, Tacitus, Homer, nor Plato is when that person talks about how Greek and Roman literature teach us about the Greatness of the West...

SOMETIMES I LOVE THE INTERNET SO MUCH!:

Ancient Technologies of Organization and Mental Domination, Clerks, Linear B, and the Potnia of Athens:

@e_pe_me_ri: I still can't believe I got away with this footnote:

Now I want to read the article this footnote is drawn from...

@e-pe-me-ri: You can! (Though I can't promise that the rest is quite so pithy): https://www.academia.edu/34570648/Creta_Capta_Late_Minoan_II_Knossos_in_Mycenaean_History …

Dave Roberts: American white people really hate being called “white people”: "They want their America, the America where white dominance is so ubiquitous as to be unremarkable, back. They keep saying so.... Being judged and asked to justify itself, as so many subaltern groups are judged and asked to justify themselves, feels like an insult. If you doubt that, go read this Twitter thread."

Today is yet another day when I wish the New York Times would simply hang it up and go home, and let the money spent on it be spent on real journalism. From Wired:

Hoisted from a Year Ago: "Populism" or "Neo-Fascism"?: Rectification of Names Blogging: That is neither the post-WWII Latin American nor the pre-WWI North American form of "populism". I do not think we are well served by naming it such. What should we name it instead? There is an obvious candidate, after all...

The highlight of last week's JEF-APARC Conference at Stanford https://www.jef.or.jp for me was getting to sit next to Frank Fukuyama https://fukuyama.stanford.edu, whom I had never met before.

I see this as a sign that it is all starting to break. Why do I think so? Because I see this as John Holbo's concept of epistemic sunk costs and debt http://crookedtimber.org/2018/06/13/epistemic-sunk-costs-and-the-extraordinary-populist-delusions-of-crowds/, as Nils Gilman's edge of political bankruptcy ...

My feeds:

• were: "Trump is awesome!", "Trump is crude but effective!", "Trump is accidentally playing eleven-dimensional chess!".

• but a while ago they shifted to: "At least Trump is owning the libs!" and "We are transferring two trillion dollars–roughly 1/10 of the total value of the stock market–to the superrich, raising our own taxes, poisoning ourselves, and putting Hispanic children in cages, but it is worth it because it owns Jewy people in Scarsdale and Santa Monica."

• and now they are: "It is all the liberals' fault! Mitt Romney was a nice guy! Because liberals would not vote for Mitt Romney, we had to vote for Trump! Yes, he is awful, but it is all the liberals' fault!".

That is what this is:

Simon Wren-Lewis: Brexit Endgame: second stage (which is unlikely to end with no deal): "A No Deal Brexit. It was inevitable that the EU would use this as a threat-that is the whole point of the A50 process...

Comment of teh Day: Erik Lund: : "In the last post on this theme, Japan's early success in replicating Armstrong-pattern guns in domestic arsenals was mentioned...

Cowboy Junkies: Sweet Jane:

Note to Self: Positive Logicism: Is the question "are all ravens black?" or "what are the odds that the next raven I see will be black?"?

Comment of the Day: Graydon: Post-WWII Western Europe: "Y'all have seen the pictures?...

• I think that this is a very important thing to remember. The Fed View—and the zero-marginal-product workers view—and a lot of other pessimistic views about the economy's non-inflationary speed limit for recovery and growth were totally, catastrophically wrong over the past decade. The people who strongly advocated for such views thus had a badly-flawed Vision of the Cosmic All. Thus I think there is no reason to put a weight higher than zero on their current views of how the world works—unless they have publicly and substantially done the work to mark their beliefs to market. Certainly the Federal Reserve has not yet done so: Timothy B. Lee: "Every additional month of strong employment growth and weak wage growth makes people who said we were near full employment in 2014, 2015, 2016, and 2017 look wronger..."

• Kevin Drum: We Need to Figure Out How to Fight Weaponized Disinformation: "I’ve been blogging for 15 years, and there’s never been a day when I wanted to stop...

The argument against Nouriel is that asset markets are still placing high valuations on everything. The argument against taking that as a sign of optimism is that true apocalypse scenarios are not priced: there is no place to hide, so fear of them produces no pressure to sell anything: Nouriel Roubini: Trump May Kill the Global Recovery: "How does the current global economic outlook compare to that of a year ago?...

I think that this is a very important thing to remember. The Fed View—and the zero-marginal-product workers view—and a lot of other pessimistic views about the economy's non-inflationary speed limit for recovery and growth were totally, catastrophically wrong over the past decade. The people who strongly advocated for such views thus had a badly-flawed Vision of the Cosmic All. Thus I think there is no reason to put a weight higher than zero on their current views of how the world works—unless they have publicly and substantially done the work to mark their beliefs to market. Certainly the Federal Reserve has not yet done so: Timothy B. Lee: "Every additional month of strong employment growth and weak wage growth makes people who said we were near full employment in 2014, 2015, 2016, and 2017 look wronger..."

The other alternative is that they will stick with him forever: the tax cut—redistributing $2 trillion in wealth to the superrich—is the only kahuna, after all. Nothing else matters: Nils Gilman: "What we're seeing with Trump's current political strategy is something very similar to the maneuvers of a corporation pulling out the stops to delay the inevitable coming bankruptcy...

Required for equitable growth: predictability—established rules of the game and due process of law, rather than random reality-TV policies by chaos monkeys. Also required: an activist government willing to create and support the communities of engineering practice and the essential services that underpin the highly-productive value chains of the future. Plus a willingness to enforce an equitable income distribution. Ricardo Hausmann fears that the United States—at least the Trump-dominated United States—has none of these: Ricardo Hausmann: Does the West Want What Technology Wants? : "To ascertain what technology wants requires understanding what it is and how it grows. Technology is really three forms of knowledge...

Given the magnitude of the shocks that have hit the world economy since 2005, Alan Greenspan's decision in the mid-1990s to set the Federal Reserve's inflation target at 2% per year rather than 3% or 4% per year looks like a bad mistake. Given what they learned and what we are still learning since 2005, Ben Bernanke, Janet Yellen, and now Jay Powell's refusal to revisit Greenspan's decision is more likely than not to prove a worse mistake. So I go further out on this limb than does the very sharp Karl Smith: Karl Smith: Hey Fed, Don’t Be Scared of a Little More Inflation: "Even if the economy is at full employment, there’s benefit to letting it run hot for a while...

Thomas Jefferson: To Walter Jones, 2 January 1814: "Your favor of Nov. 25. reached this place Dec. 21. having been near a month on the way...

The problem with debates about the philosophy of statistics is that it influences what you do: Minimize regret or minimize expected loss? Coverage or coherence? Is nature (and our own brains) our friend or our foe? There are actual real stakes here, in a way that there are not real stakes in philosophy of quantum mechanics or of economics...

Suppose we have some knowledge of the distribution of a parameter—Gaussian, with mean and variance known, because why not.

Comment of the Day: Robert Waldmann: Why Statistics Is So Tightly Integrated with the Historically-Contingent Institutions of Games of Chance: "I want to talk about Keynes (that is: the pages of the Treatise on Probability that I read)...

Dedicated to celebrating the memory of two field commanders who may well have been the worst in history:

Drink a toast to John Bell Hood on the 7/28 anniversary of his defeat at Ezra Church1

Hood... moved his troops out to oppose the Union army... planned to intercept them and catch them completely by surprise.... Unfortunately for Hood... Howard had predicted such a maneuver based on his knowledge of Hood from their time together.... His troops were already waiting in their trenches when Hood reached them. The Confederate army also had not done enough reconnaisance... and made an uncoordinated attack.... In all, about 3,642 men were casualties; 3,000 on the Confederate side and 642 on the Union side

And drink a toast to Max von Gallwitz—perhaps the only Imperial German commander who could have turned the Somme into a draw!

Tim Duy: Powell Wants to Create Some Mystery Around Fed Meetings: "A slower or faster pace of rate hikes, an extended pause, or even a cut are all possibilities at this point...

IMHO, the threat of Stalin had at least as much to do with the end of war in western and central Europe as did the projection of American power. And that kind of threat remains—one of Putin-enabled destabilizing kleptocracy—to keep Europe, at least Europe west of the German-Polish border, peaceful and civilized. But, yes, I do not think anybody wants a larger German or Japanese military, even now. I think that is a feature, not a bug: Claire Berlinski: "Modern Europe–liberal, democratic Europe–is the United States’ creation.: This story was once known to every American, but as the generation responsible for this achievement dies, so too has the knowledge ceased to be passed down casually, within families...

Ryan Avent: Bond yields reliably predict recessions. Why?: "An inverted yield curve may mean a few things, none of them cheering...

Early industrial Japan did marvelous things. It accomplished something unique: transferring enough industrial technology outside of the charmed circles of the North Atlantic and the temperate-climate European settler economies. Ever since, politicians, economists, and pretty much everybody else have been trying to determine just what it was Japan was ale to do, and why. But it was a low-wage semi-industrial civilization, economizing on land, materials, and capital and sweating labor: Pietra Rivoli (2005): The Travels of a T-Shirt in the Global Economy: An Economist Examines the Markets, Power, and Politics of World Trade (New York: John Riley: 0470456426) https://books.google.com/books?isbn=0470456426: "Female cotton workers in prewar Japan were referred to as 'birds in a cage'...

Note to Self: Obama essentially turned monetary, fiscal, and housing policy over to two guys who were “calm down and hope for the best“ rather than “prepare for the worst“ guys: Ben Bernanke and Tim Geithner. Those were, in retrospect, disastrous choices—not because of what they did but because of their opposition to thinking well outside the box and preparing to deal with the worst case scenario’s. So when the “green shoots” of a strong recovery that both saw were not there at all—when they claimed the strong recovery glass was mostly full but in fact there was no glass—their position kept others who would have been preparing for the worst, and who might have been able to do better at dealing with the situation, from being able to take any effective action...

The problem with this is that I do not think that I have the story of Japan's successfully pre-WWI development path nailed, the way I have the Chinese story of failure nailed. Oh well:

The opposite of China in the pre-World War I years was Japan.

In the early seventeenth century the Tokugawa clan of samurai decisively defeated its opponents at the battle of Sekigahara, and won effective control. Tokugawa Ieyasu petitioned the—secluded Priest-Emperor to grant him the title of Shogun, the Priest-Emperor's viceroy in all civil and military matters. His son Hidetaka and grandson Iemitsu consolidated the new régime. From its capital, Edo—renamed and now Tokyo—the Tokugawa Shogunate ruled Japan for two and a half centuries.

At its very start, early in the seventeenth century, the Tokugawa Shogunate took a look to the south, at the Philippines. Only a century before, the Philippines had been independent kingdoms. Then the Europeans landed. Merchants had been followed by missionaries. Converts had proved an effective base of popular support for European influence. Missionaries had been followed by soldiers. And by 1600 Spain ruled the Philippines.

Starting to be the right way to do this kind of work. But be careful! Active genes that code for melanin are strongly correlated with low educational attainment. Yet I do not believe that even the Charles Murrays and the Andrew Sullivans of the world believe that active melanin production in any way affects "brain-development... and neuron-to-neuron communication": James J. Lee, Robbee Wedow, about 105 others, and David Cesarini: Gene discovery and polygenic prediction from a genome-wide association study of educational attainment in 1.1 million individuals: "A large-scale genetic association analysis of educational attainment... 1.1 million individuals... 1,271 independent genome-wide-significant [Single nucleotide polymorphisms]...

Wealth inequality measures have been grossly understating concentration because of tax evasion and tax avoidance in tax havens: Annette Alstadsæter, Niels Johannesen, and GabrielZucman: Who owns the wealth in tax havens? Macro evidence and implications for global inequality: "This paper estimates the amount of household wealth owned by each country in offshore tax havens...

Ann Marie Marciarille: David Slusky on The Impact of the Flint Water Crisis on Fertility: "K.U.'s David Slusky gave an interesting talk on "The Impact of the Flint Water Crisis on Fertility".  A 4.9% decrease in birth weight is hard to ignore...

Edith Laget, Alberto Osnago, Nadia Rocha, and Michele Ruta: Trade agreements and global production: "Deeper agreements have boosted countries’ participation in global value chains and helped them integrate in industries with higher levels of value added. Investment and competition now drive global value chain participation in North-South relationships, while removing traditional barriers remains important for South-South relationships..."

I know, this is one hell of a grab-bag of categories. But I do think it is a category:

• Judea Pearl provides the first good response I have ever heard to Cosma Shalizi's priceless anti-Bayesian rant: Cosma Shalizi (2016): On the Uncertainty of the Bayesian Estimator: "I hardly know where to begin. I will leave aside the color commentary. I will leave aside the internal issues with Dutch book arguments for conditionalization. I will not pursue the fascinating, even revealing idea that something which is supposedly a universal requirement of rationality needs such very historically-specific institutions and ideas as money and making book and betting odds for its expression..."

• Jonathan Gottschall (2012): The Storytelling Animal: How Stories Make Us Human (New York: Houghton Mifflin Harcourt: 0547391404) https://play.google.com/?id=Bl43cU5rdVwC

Note to Self Deep and true thinking about how to build structural models, and what they tell us about what to control for—and what not to control for—in estimation: Judea Pearl and Dana Mackenzie: The Book of Why: The New Science of Cause and Effect (New York: Basic Books: 0465097618) https://books.google.com/books?isbn=0465097618:

Belated awakenings of this sort are not uncommon in science. For example, until about four hundred years ago, people were quite happy with their natural ability to manage the uncertainties in daily life, from crossing a street to risking a fistfight. Only after gamblers invented intricate games of chance, sometimes carefully designed to trick us into making bad choices, did mathematicians like Blaise Pascal (1654), Pierre de Fermat (1654), and Christiaan Huygens (1657) find it necessary to develop what we today call probability theory. Likewise, only when insurance organizations demanded accurate estimates of life annuity did mathematicians like Edmond Halley (1693) and Abraham de Moivre (1725) begin looking at mortality tables to calculate life expectancies. Similarly, astronomers’ demands for accurate predictions of celestial motion led Jacob Bernoulli, Pierre-Simon Laplace, and Carl Friedrich Gauss to develop a theory of errors to help us extract signals from noise. These methods were all predecessors of today’s statistics...

Note: This is the answer to Cosma Shalizi‘s question about why it is that the supposedly general theory of Bayesian statistics makes such reliance on the bizarre and contingent institutional facts of gambling. We express Bayesian ideas in gambling contexts because those were the first contexts complicated enough for us to need to formalize and develop what we already knew.