4. Another superb Michael Hoffman review, this time of Martin Amis on Auschwitz.
4. Another superb Michael Hoffman review, this time of Martin Amis on Auschwitz.
From Inside Higher Ed:
The University of Michigan’s regional accreditor has signed off on a new competency-based degree that does not rely on the credit-hour standard, the university said last week. The Higher Learning Commission of the North Central Association of Colleges and Schools gave a green light to the proposed master’s of health professions education, which the university’s medical school will offer. In its application to the regional accreditor, the university said the program “targets full-time practicing health professionals in the health professions of medicine, nursing, dentistry, pharmacy and social work.”
We have shown that in the model with capital, the presence of productive assets carrying a positive marginal product does not eliminate the possibility of a secular stagnation. The key assumption is that capital has a strictly positive rate of depreciation. In the absence of depreciation, capital can serve as a perfect storage technology which places a zero bound on the real interest rate. It is straightforward to introduce other type of assets, such as land used for production, and maintain a secular stagnation equilibrium. For these extensions, however, it is important to ensure that the asset cannot operate as a perfect storage technology as this may put a zero bound on the real interest rate.
Let me recapitulate the basic problem. Secular stagnation models are supposed to exhibit persistent negative real rates of return, but how is this compatible with economic growth and positive investment? Just hold onto stuff if need be and of course the goverment can help you do this with safe assets, if need be. The earlier models had no capital, which ruled out this possibility. The new model assumes storage costs for capital are fairly high, or alternatively the depreciation rate for capital is high. Since you can’t sit on your wealth, you might as well invest it at negative real rates of return.
But at the margin, storage costs for goods (and some capital) are not that high. My cupboard is full of beans and cumin seed, but I eat the stuff only slowly. In the meantime it is hardly a burden, nor is it risky since I know it will be tasty once I make the right brew. Art has negative storage costs (for the marginal buyer it is fun to look at), although its risk admittedly makes this a more complicated example. Advances in logistics, and the success of Amazon, show that storage costs are getting lower all the time.
Secular stagnation might be a good model for Liberia and Venezuela and Mad Max, but not for the United States today or other growing economies with forward momentum. But a credible stagnation model for America needs to recognize that rates of return will be lower than usual but not negative in real terms. And there won’t be a long-run shortfall of demand because eventually market prices will adjust so that demand meets the supply we have. That is a supply-side stagnation model of the sort promoted by myself, Robert Gordon, Peter Thiel, Michael Mandel, and others. In the secular stagnation model as it is now being discussed by Keynesian macroeconomists, you end up twisting yourself in knots to force that real rate of return into permanently negative territory. Of course if you allow the real rate of return to be positive albeit low, the economy is not stuck in a perpetual liquidity trap as people move out of cash into investment assets. The demand-side stagnation mechanisms fade away into irrelevance once prices have some time to adjust.
Izabella Kaminska comments here. Josh Hendrickson has a very good blog post on the model here. I’ve already cited Stephen Williamson here, he notes the model is really about a credit friction and would be remedied with a greater supply of safe assets for savings, an easy enough problem to solve, for instance try the Bush tax cuts. Here is Ryan Decker on the model, and here is Ryan arguing that investment is aggregate demand also and many of us seem to have forgotten that, a very good post.
This is an important and interesting paper, but only because it shows the model doesn’t really hold and requires such contortions. The discussion of policy results is premature and way off the mark. The authors should have included sentences like “storage costs aren’t very high, and the economy as a whole does not exhibit negative real rates of return, so these policy conclusions are not actual recommendations.”
Maybe that welfare cost is not very high at all. After all, if Amazon does not carry a book you can sign up at the Barnes & Noble website and that takes a few minutes at most.
There is a tension in most criticisms of Amazon. On one hand, the critic wishes to argue that a “not carry” decision by Amazon has a big impact on how a book does. On the other hand, the critic wishes to argue that the loss of access to particular titles is a big deal. You cannot easily have it both ways. If readers won’t switch to B&N.com, they must not care very much about particular titles, in which case the Amazon refusal to carry (or delay in shipping) is small even relative to the size of the (small) trade in books.
Krugman’s column today, which covers Amazon vs. Hachette, appears terrible at first glance, but in fact he presents a new and original argument. Get past the mood affiliation and you come to this:
…what Amazon possesses is the power to kill the buzz. It’s definitely possible, with some extra effort, to buy a book you’ve heard about even if Amazon doesn’t carry it — but if Amazon doesn’t carry that book, you’re much less likely to hear about it in the first place.
If I may fill in some blanks, one possible version of the hypothesis — to pull an idea from Gary Becker and Steve Erfle — is that readers consume both “books” and “buzz around books” as complements. The marginal gains from books can be low but the marginal gains from the bundled package may be much higher and those higher gains will not be measured by the (high) price elasticity of book purchases.
In the early stages of this war, Amazon boycotts have often increased the buzz for a book, such as with Beth Macy’s Factory Man. But if these practices continue, they will cease to be news stories and an Amazon refusal to carry or promote plausibly will damage how books will do, without much potential for upside.
How much of the value in a book/buzz package is due to the buzz? 65 percent? That would explain the concentration of reading interest among bestsellers and books your peers are reading. But if Amazon won’t carry or promote a book, does the total supply of buzz fall? Or does the buzz simply transfer to other titles? In the latter case we are again back to small welfare costs from an Amazon refusal to carry. Krugman’s idea is fun, but I am still inclined to think the welfare cost of Amazon supply restrictions on individual books likely is small, again even relative to the size of the book sector, much less relative to gdp.
It is fine to argue that Amazon is being unfair to some authors and to object on ethical grounds. The economist also should add that readers don’t seem to mind very much. Most of the objections I am seeing are coming from authors and publishers, who of course in this sector are much less diversified in their interests than are readers.
6. Contrary to a behavioral econ claim about threshold earnings, taxi drivers in fact have positive elasticity of supply.
7. Elisa New (wife of Larry Summers) has a poetry MOOC from Harvard, Larry will appear to discuss economics and poetry with her.
There is a new NBER paper by Campbell R. Harvey, Yan Liu, and Heqing Zhu, and it is a startler though perhaps not a surprise:
Hundreds of papers and hundreds of factors attempt to explain the cross-section of expected returns. Given this extensive data mining, it does not make any economic or statistical sense to use the usual significance criteria for a newly discovered factor, e.g., a t-ratio greater than 2.0. However, what hurdle should be used for current research? Our paper introduces a multiple testing framework and provides a time series of historical significance cutoffs from the first empirical tests in 1967 to today. Our new method allows for correlation among the tests as well as missing data. We also project forward 20 years assuming the rate of factor production remains similar to the experience of the last few years. The estimation of our model suggests that a newly discovered factor needs to clear a much higher hurdle, with a t-ratio greater than 3.0. Echoing a recent disturbing conclusion in the medical literature, we argue that most claimed research findings in financial economics are likely false.
The emphasis is added by me. There are ungated versions of the paper here.
For the pointer I thank John Eckstein.
The Germans lecture the periphery to engage in structural reform and increase their exports. A variety of IS-LM Keynesians strike back and note that not all nations can increase their net exports, therefore it is a kind of zero-sum game which won’t boost aggregate demand overall. This is sometimes followed by blaming the Germans for soaking up aggregate demand from other parts of the world.
But that Keynesian counter is a mistake, perhaps brought on by the IS-LM model and its impoverished treatment of banking and credit.
Let’s say all nations could indeed increase their gross exports, although of course the sum of net exports could not go up. The first effect is that small- and medium-sized enterprises would be more profitable in the currently troubled economies. They would receive more credit and the broader monetary aggregates would go up in those countries, reflating their economies. (Price level integration is not so tight in these cases, furthermore much of the reflation could operate through q’s rather than p’s.) It sometimes feels like the IS-LM users have a mercantilist gold standard model, where the commodity base money can only be shuffled around in zero-sum fashion and not much more can happen in a positive direction.
Second, the higher (gross) exports and higher quantity of trade overall would produce positive wealth effects. This too would reflate economies through a variety of well-known mechanisms, including but not restricted to the easing of collateral constraints.
In other words, it can help reflate all or most of the economies if they increase their gross exports, even though net exports are a zero-sum magnitude.
This interpretation of the meaning of zero-sum net exports is one of the most common economic mistakes you will hear from serious economists in the blogosphere, and yet it is often presented dogmatically or dismissively in a single sentence, without much consideration of more complex or more realistic scenarios.
This is from Larry Summers and Lant Pritchett:
…knowing the current growth rate only modestly improves the prediction of future growth rates over just guessing it will be the (future realized) world average. The R-squared of decade-ahead predictions of decade growth varies from 0.056 (for the most recent decade) to 0.13. Past growth is just not that informative about future growth and its predictive ability is generally lower over longer horizons.
The main point of this paper is to argue that Chinese growth rates will become much lower, perhaps in the near future, here is a summary of that point from Quartz:
Summer and Pritchett’s calculations, using global historical trends, suggest China will grow an average of only 3.9% a year for the next two decades. And though it’s certainly possible China will defy historical trends, they argue that looming changes to its authoritarian system increase the likelihood of an even sharper slowdown.
The piece, “Asiaphoria Meets Regression Toward the Mean,” is one of the best and most important economics papers I have seen all year. There is an ungated version here (pdf). I liked this sentence from the piece:
Table 5 shows that whether or not China and India will maintain their current growth or be subject to regression to the global mean growth rate is a $42 trillion dollar question.
And don’t forget this:
…nearly every country that experienced a large democratic transition after a period of above-average growth…experienced a sharp deceleration in growth in the 10 years following the democratizing transition.
As Arnold Kling would say, have a nice day.
1. Good essay on risk communication during pandemics (though it focuses on flu, not Ebola).
3. What Saddam Hussein said in public vs. what he said in private (hat tip www.bookforum.com for the last two links).
Underpaid or overpaid?:
They’re looking for the few, the proud — and the really desperate.
For a measly $19 an hour, a government contractor is offering applicants the opportunity to get up close and personal with potential Ebola patients at JFK Airport — including taking their temperatures.
Angel Staffing Inc. is hiring brave souls with basic EMT or paramedic training to assist Customs and Border Protection officers and the Centers for Disease Control and Prevention in identifying possible victims at Terminal 4, where amped-up Ebola screening started on Saturday.
EMTs will earn just $19 an hour, while paramedics will pocket $29. Everyone must be registered with the National Registry of Emergency Medical Technicians.
The medical staffing agency is also selecting screeners to work at Washington Dulles, Newark Liberty, Chicago O’Hare and Hartsfield-Jackson Atlanta international airports.
From 1973 to 1985 German inflation was most of the time over two percent a year, sometimes much over two percent. In 1973 it hit eight percent and in the early eighties it exceeded six percent a year. Source here (pdf), see p.6.
From 1951-1973, the Germans seemed happy with roughly the same inflation rate as what Americans had. Source here (pdf), see p.9, and also p.13, passim. In the early 1970s, the rate averaged almost seven percent a year for a few years (p.15). It is fine to note the role of oil shocks here, and in the earlier period Bretton Woods, but still Germans tolerated the higher inflation rates. They expected the alternatives would be worse and probably they were right.
The claim that the current German dislike of inflation dates back to unique memories of Weimar hyperinflation is dubious. Rightly or wrongly, today’s Germans associate high rates of inflation with wealth transfers away from Germany and toward other nations. More broadly, Germany is a more flexible country than outsiders often think, not always to the better of course.
So for once I can intelligently comment on a Marginal Revolution article. (I have a Ph.D. in applied plasma physics and fusion energy; I worked on the “conventional” fusion reactor design, the tokamak). Lockheed hasn’t released many details of their concept (at least, not enough details that it can actually be evaluated in technical detail), but it looks like it’s a combination of a magnetic mirror and a levitated dipole. The magnetic mirror was studied in detail in the 1960s and 1970s and didn’t work out (due to [detailed plasma physics reasons]) and the levitated dipole has a fundamental flaw as a power-producing reactor in that the superconducting magnets are inside the neutron shielding – neutrons destroy the magnets.
It’s tough as a scientist to be able to comment on things like this, because it’s “science by press release”, i.e. there’s a big media hype but the actual researchers don’t release enough technical details to actually evaluate it. One wants to remain cautiously optimistic, but with fusion in particular, we’ve been down this road many, many times. Thus I predict that the most likely outcome is that as they scale their device up, they’ll find that the confinement (a measure of how well the device holds a fusion plasma) unexpectedly drops off due to some different types of turbulence turning on at higher temperatures / higher pressures… and it will quietly go away.
I hope that I am proven wrong.
There are other interesting comments at the link and Kottke offers more.