Assorted links

by on February 18, 2012 at 12:37 pm in Uncategorized | Permalink

1. Measuring the output gap, an excellent post looking at capacity utilitzation and changes in inflation rates to back out an answer to this question.  The bottom line is that the output gap probably isn’t nearly as large as is often claimed.  And Karl Smith comments, I would note the connection between the ppf and trust.

2. Obama’s hardline turn against medical marijuana.

3. Markets between everything and everyone, and Literary Saloon reviews Allan Meltzer.

4. Testing Milton Friedman, new TV show with Caplan, Yglesias, Dalmia, Williams, others.

5. Graphs about Hollywood.

Jeff February 18, 2012 at 12:58 pm

Tyler, were you not asked to participate in the Milton Friedman discussion? Did you turn them down? Why?

Tyler Cowen February 18, 2012 at 1:32 pm

I was very busy at the time, but I thought it seemed like a good project.

TallDave February 18, 2012 at 1:36 pm

Good to see Shikha on TV, met her on the Reason cruise last year, very telegenic and a good speaker. Good to see Amity on there as well, I’ve been a fan since her CAFTA advocacy way back when, and The Forgotten Man is a must-read.

Corey February 18, 2012 at 1:38 pm

Nice to see Ragu Rajan on there as well.

TallDave February 18, 2012 at 1:45 pm

Oh, and 2 is very disappointing. It was one of the few positives libertarians saw in Obama, and he has more or less completely failed to deliver. But the next Prop in CA, which emphasizes regulation and taxation over decriminalization, is looking good at the moment. I think people are ready to believe the sky won’t fall if people are allowed to use marijuana as responsibly as they are alcohol, nicotine, caffeine, sugar etc.

1 also strikes me as true, especially the point about manufacturing utilization. Manufacturing clients I work with have already adapted to current levels of demand by closing plants and production lines over the last couple years. Some of those resources aren’t so much idle as removed from service entirely, and sold off as scrap.

FYI February 18, 2012 at 2:00 pm

Is there any data about how many people are in jail because they were caught consuming marijuana? I think part of the reason this kind of change has not happened yet is because it looks like a red herring where the ultimate goal is the decriminalization of harder drugs.

Jeff February 18, 2012 at 2:03 pm

That is the ultimate goal, isn’t it? *sinister laugh*

TallDave February 19, 2012 at 11:18 pm

The phrase you’re loking for is “stalking horse” rather than “red herring” I think.

The logic for harder drugs is similar but not quite the same. It’s just ridiculous for marijuana to be illegal in a world where alcohol is legal. The argument for legalization of harder drugs is actually closer to that for alcohol itself: the attempt to ban it produces negative consequences for society that outweigh the benefits. But let people see legal marijuana doesn’t end civilization, then we can talk about saving South America from our drug war.

CBBB February 18, 2012 at 2:54 pm

Obama has completely failed to deliver on anything civil liberties related. He has entrenched all the policies liberals claimed to hate during the Bush administration and given those policies the bipartisan blessing. At the end of the day Obama is just a spineless, cowardly, politician who doesn’t want to upset the establishment – particularly the police/Drug Enforcement/Military establishment.

dearieme February 18, 2012 at 3:05 pm

Perhaps someone in the police/Drug Enforcement/Military establishment knows something that O would prefer the public not to know. I know it’s a lazy guess, but it might be right. Did the FBI’s power evaporate on Hoover’s death?

CBBB February 18, 2012 at 3:13 pm

No, the reason is Obama, like most social climbers, have a very very ingrained bias towards establishment authority

Ed February 18, 2012 at 9:59 pm

CBBB is on to something, I am now struck by the similarities between Obama and Obadiah Slope.

Foobarista February 18, 2012 at 3:34 pm

This is because Obama is a fanatic statist. Whenever there’s a policy choice between something that increases bureaucratic headcount and reducing it, Obama will always go for the increase. And lots of bureaucrats and government types will lose their livelihoods if MJ is legalized.

Eapen Thampy February 18, 2012 at 2:16 pm

File #2 under “There is a great stagnation”.

Also, I’ve been fortunate to have organized the Show-Me Cannabis Regulation initiative in Missouri. http://www.show-mecannabis.com. File under “Great Recalculation”.

Jack February 18, 2012 at 2:30 pm

(3) Can anyone reasonable today be “against capitalism”? The real question is how do we steer away from crony capitalism, which is one of the main causes of the recession and financial crisis? Put another way: with 100% free markets, you have no crony capitalism, but also no regulation. Only the staunchest libertarians would approve. Increase regulation (or increase wrong types, more generally), you increase crony capitalism. There should be greater effort devoted to understanding this tradeoff.

The Original D February 18, 2012 at 11:15 pm

+100

Ted Craig February 18, 2012 at 2:39 pm

5. The author keeps talking about grosses, but profits are what really matter.

Mark Thorson February 18, 2012 at 3:16 pm

As the author mentions, true data on profits is hard to come by. Delibrately so.
http://en.wikipedia.org/wiki/Hollywood_accounting

Ted Craig February 18, 2012 at 9:09 pm

True, but even the data you can get off sites like boxofficemojo shows while grosses can be higher for action movies, comedies often have better margins.

Ben February 18, 2012 at 2:44 pm

(1) On capacity utilization: the average of a wildly varying value does not give a valid statistic.

CBBB February 18, 2012 at 2:58 pm

I’ve said it before and I’ll say it again Matt Yglesias is a sellout to the Corporatist right.

Matt Waters February 18, 2012 at 3:53 pm

If you’re referring to the fact that he’s appearing on the television show, the actual Free to Choose show back in the day always had die-hard liberals who unashamedly argued their viewpoints. His show on privatizing education, for example, had the head of a teacher’s union saying that parents aren’t smart enough to decide where their kids can go to school.

To be honest, I do find my own views closer to Yglesias than to the dogmatic libertarians they have on that program such as Walt Williams. Yglesias just happens to be a liberal (who does want to tax the rich more, have more income reallocation, etc.) who admits the reality that free markets are the ideal economic system because they (theoretically) make sure nobody takes more than they give. In a free market, people can only take what other people are freely willing to give them. There are market failures where the “takings” can not be voluntarily withheld by those getting taken from, such as pollution, but a free market with perfect information is still the ideal even if people who do take more than they give, like unions and workers in declining industries, lose out.

Ed February 18, 2012 at 10:04 pm

I think the left-wing case against Yglesias (I stopped paying attention to him not because of his views, but because one of his blogs became unwieldy), is that on every really important issue he keeps taking the right wing position. He seems like a member of the yuppieish liberal tribe and is good on things that will never be implemented or won’t matter much, but will always let the team down in clutch situations. Of course this can be said of every recent Democratic presidential candidate and most Democratic legislators.

Matt Waters February 18, 2012 at 3:36 pm

There are a number of issues with #1:

1. First, under a typical theory of sticky wages causing a big output gap, one would expect Core CPI to not decline as much as the output gap. That’s the whole point of how output gaps can happen even if the unemployed can and are willing to produce something.Wages and thus prices do not decline to their market-clearing levels, causing an output gap. The problem is worse with core CPI, where the end costs of the products consist almost entirely of wages. If you look at total CPI, which includes less sticky commodities, the deflation from mid-2008 to mid-2009 is plainly evident.

2. Manufacturing is still a decent part of the US’s economic production, but far fewer people work in manufacturing. Most of the people left in manufacturing are sophisticated production engineer who have seen greatly increased productivity recently. So while the recession may have decreased the market-clearing prices for manufacturing output, if productivity has increased even more then prices can fall to their market-clearing level and manufacturing capacity utilization would not decline as much (it’s still about 10% lower than what it averaged before 2008).

3. As I said, manufacturing has very few people working in it. The vast brunt of the downturn has been borne by construction, state/local jobs and lower white-class jobs like administrative assistants and entry-level engineers. And certainly nobody could argue with a straight face that there is no output gap in construction. But those construction jobs were all there because of the housing bubble, right? That brings me to the third graph in the post.

4. Look real closely at when RGDP starts falling dramatically. If it was because of the bursting housing bubble, it would have declined dramatically when the housing bubble dropped. But it stayed on a good upward trajectory until mid-2008. That was when the Fed first raised interest rates too high to offset a supply-side inflation shock in gas prices and then the Wicksellian natural rate went below the zero-bound. Housing construction outside of bubble areas as well as commercial and government construction and big state/local government layoffs/furloughs saw a steep decline because of falling demand and falling tax revenues. Demand and tax revenues likewise fell due to a drop in commercial and government construction and big state/local government layoffs/furloughs. That’s a textbook defaltionary, Great Depression-era output gap which happens for no real reason at all except of the large market failures in labor markets.

As far as the yellow line vs. red line, the lower line is using the troughs in RGDP for the 2000-03 recession. As Sumner has pointed out, we had a “jobless recovery” in those years because we really didn’t have a recovery at all. The slow drop in unemployment during those years also shows a textbook output gap because Greenspan was too afraid to drop interest rates below 1% for political reasons. Therefore, the red line and not the yellow line is closer to the real output capacity of the economy. At the end of the day, the output gap is real, big, and completely and totally unnecessary because, as Ben Bernanke says, “the Fed is not out of ammunition.”

Matt Waters February 18, 2012 at 3:42 pm

Hmm, I got the lines confused in the last paragraph. The higher, yellow line and not the red line is likely the true output gap based on unemployment numbers 2001-03 and 08 onward, unless all of those unemployed happened to be ZMP workers.

JR Hager February 18, 2012 at 4:18 pm

US libertarians need to laugh at the other parties, all look the same anyway, that’s why I put together this blog 4 us, and why I’m sharing it with you. We gotta laugh, or go nuts, right !

Thanks, guys and dolls, for being there.
Be safe,
JR Hager

Donald Pretari February 18, 2012 at 4:59 pm

Almost All of my Political & Economic Views come from Smith, Burke, Jevons, Bagehot, Fisher, Knight, Simons, Hayek, Oakeshott, & Milton Friedman. My evidence comes from clear statements where X says “I’m for y.” Rarely, I’ll read a secondary source that interests me. But I’m long past the point of caring what others say about these men. When I quote these men, I’m giving credit to the source of my views. It is not an Argument from Authority. I’ll be happy when people actually read these men. Read Milton Friedman’s books, & then watch this show.

albatross February 18, 2012 at 10:18 pm

Obama completely caved in to basically everyone involved in law enforcement and spying and homeland security. I don’t think it’s unreasonable to imagine that might be related to someone having serious dirt on him, or alternatively on enough people he needs to work with that Obama has to go along. My fear is that, after a few years of modern computer-enabled domestic surveillance, the holders of the records have so much power nobody will ever dare to cross them.

An alternative explanation is that Obama simply said liberal things w.r.t. police and spy powers in order to get elected, with no more twinge of moral discomfort than a used car salesman has telling a customer that *of course* this car has been maintained well by its previous owner.

CBBB February 18, 2012 at 11:19 pm

That’s not really an ALTERNATIVE explanation that is THE explanation. That’s what ALL politicians do – they’re all scum. No one who came from a non-elite background who ended up going to the best prep school in Hawaii and then onto Columbia and Harvard Law is going to be the kind of guy who is going to take on a powerful establishment favoured by the national elite.
Doing that kind of thing goes against every fiber in his being – he’s been bred to be spineless and conventional.

Anon. February 19, 2012 at 1:06 am

I think it is a good sign of the lasting power of his campaign tactics and his oratory skills that people are willing to make up outlandish conspiracy theories about “someone” having “dirt” instead of accepting the simple and frankly rather obvious truth of your “alternative explanation”.

Meekins February 19, 2012 at 9:57 am

Tyler, IIRC, a couple years ago you were dismissive of Eric Janszen’s “bubble economy” article in Harper’s. In light of your recent views on the size of the output gap, and earlier statements along the lines of, “We are not as wealthy as we thought we were,” does your respect for Janszen’s thesis increase?

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