Grasping Reality on TypePad, by Brad DeLong

Worthy Reads Elsewhere:

1. I am genuinely confused here: Do we have an "eastern heartland" problem? Or do we have a "prime age male joblessness" problem? Those two problems would seem to me to call for different kinds of responses. yet Summers, Glaeser, and Austin are smooshing them into one: Edward L. Glaeser, Lawrence H. Summers and Ben Austin: A Rescue Plan for a Jobs Crisis in the Heartland: "In Flint, Mich., over 35 percent of prime-aged men—between 25 and 54—are not employed...

2. Wise to people who want to be journalists in our current age: (1) Don't expect backup from your peers. (2) rather, the reverse. (3) Falsehood comes faster than you can report it, let alone debunk it: Alexey Kovalev: A message to my doomed colleagues in the American media: "Congratulations, US media! You’ve just covered your first press conference of an authoritarian leader with a massive ego and a deep disdain for your trade and everything you hold dear. We in Russia have been doing it for 12 years now — with a short hiatus when our leader wasn’t technically our leader—so quite a few things during Donald Trump’s press conference rang a bell. Not just mine, in fact—read this excellent round-up in The Moscow Times..."

3. 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..."

4. 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..."

5. Extremely wise and interesting on how the more empirical reality tells the Trumpists to mark their beliefs to market, the more desperate they are to avoid doing so: John Holbo: Epistemic Sunk Costs and the Extraordinary, Populist Delusions of Crowds?: "Here’s a thought.... The first rule of persuasion is: make your audience want to believe...

6. The Trump administration and the Republicans that enable it do not understand that disrupting value chains does not get you the benefits in terms of shifting the terms-of-trade in your favor that (with no retaliation) tariffs can in the "optimal tariff" literature when levied on finished goods: Chad P. Bown:" BMW says it will build more of its SUVs overseas and NOT IN SOUTH CAROLINA because of China’s retaliation on US autos in response to Trump’s tariffs...

7. People are not effective price-sensitive consumers for health insurance. We can argue why they are not. But first we need to admit that we are not: Zarek C. Brot-Goldberg, Amitabh Chandra, Benjamin R. Handel, and Jonathan T. Kolstad: What does a Deductible Do? The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics: "We leverage a natural experiment at a large self-insured firm that required all of its employees to switch... to a nonlinear, high-deductible plan...

8. The empirical studies are finding more and more hysteresis—more hysteresis in the sense of a persistent downward shadow cast by a recession than I would have believed likely. I keep hunting for something wrong with these studies. But there are too many of them. And they all—at least all those published that cross my desk—point in the same direction: Karl Walentin and Andreas Westermark: Stabilising the real economy increases average output: "DeLong and Summers (1989)... argue that (demand) stabilisation policies can affect the mean level of output and unemployment...

9. See: here is another study that finds a lot of hysteresis—an ungodly amount: Christina D. Romer and David H. Romer: Why Some Times Are Different: Macroeconomic Policy and the Aftermath of Financial Crises: "Analysis based on a new measure of financial distress for 24 advanced economies in the postwar period shows substantial variation in the aftermath of financial crises...

10. I think this a very interesting framework. But it is, I think, too simple to be of material use in trying to understand what is going on in the real world. Your mileage may vary: Daron Acemoglu (2001): Directed Technical Change: "Whether technical change is biased towards particular factors is of central importance...

11. 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...

12. How to use and misuse the argument ad hominid: Belle Waring (2003): Just Not So Stories: "Like everyone else, I'm tired of hearing about how Darwinian pressures cause men to think that young women with a fetching hip-to-waist ratio...

13. A paper I badly need to read, and to read today: Talia Bar and Asaf Zussman: Partisan Grading: "We study grading outcomes associated with professors in an elite university in the United States who were identified...

14. Nick Stern is right: Discount rates are highly endogenous to scenarios—and go way, way down in true catastrophe scenarios in which insurance is not possible. Nick Stern is right: Societal discount rates cannot be read off of imperfect capital markets. Climate change studies that start from either the assumption of a pure positive real intertemporal discount rate or from financial market perfection are, I think, as close to worthless as anything on God's Green Earth: Nicholas Stern: Public economics as if time matters: Climate change and the dynamics of policy https://doi.org/10.1016/j.jpubeco.2018.03.006: "Subjects such as the dynamics of innovation, of potentially immense and destabilising risks, and of political economy, together with technicalities around non-linearities and dynamic increasing returns...

15. How, again, is Donald Trump supposed to win a breath-holding contest with an authoritarian régime that both controls its media and sees little downside in redirecting resources to cushion the impact on potentially noisy losers?: Paul Krugman: How to Lose a Trade War: "Trump’s declaration that 'trade wars are good, and easy to win' is an instant classic, right up there with Herbert Hoover’s 'prosperity is just around the corner'...

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