Current Affairs

Many of us think this diagram shows there has been some kind of structural break in the labor market, and/or that recovery is proceeding slowly.  Paul Krugman, very recently, suggests that structural factors play little role because the measured unemployment rate is now below five percent.

But in fact labor market indicators are quite mixed, and furthermore the best and latest research out of MIT indicates the structural story does indeed carry real weight.  See also Alan Krueger’s work, or recent research from the AER.  And there are plenty of markers of a more persistent shift in economic activity, as reflected in CBO markdowns of expected productivity growth, based partly on trends which preceded the recession.  That all might be wrong, but the mere citation of the current 4.9 unemployment rate doesn’t persuade me otherwise.

Let’s not forget what Krugman wrote in 2012:

My current favorite gauge of the jobs picture is the employment-population ratio for prime-age adults (25-54). EP ratio instead of unemployment rate, because U may be distorted by workers dropping out…Everything else is just noise.

At least as of yesterday, the preferred labor market indicator was once again the unemployment rate, no mention of 2012.  That was then, this is now, I suppose.

The rest of Krugman’s history on recovery is curious.  Very early on he predicted a rapid recovery (if not right away), then he predicted for several years a long-standing secular stagnation, now he seems to be citing “a recovery of demand.”  I don’t see anything wrong with such a change in emphasis, as the facts change, and Krugman himself makes this meta-point fairly frequently.  Still it is odd for him to be criticizing the predictive record of others on these issues.  He’s been through what appears to be three distinct positions on recovery, and two distinct positions on which labor market indicators really matter, and we are still not sure exactly which views are is correct.

Bryan Caplan is pleased that he has won his bet with me, about whether unemployment will fall under five percent.  I readily admit a mistake in stressing unemployment figures at the expense of other labor market indicators; in essence I didn’t listen enough to the Krugman of 2012.  This shows there were features of the problem I did not understand and indeed still do not understand.  I am surprised that we have such an unusual mix of recovery in some labor market variables but not others.  The Benthamite side of me will pay Bryan gladly, as I don’t think I’ve ever had a ten dollar expenditure of mine produce such a boost in the utility of another person.

That said, I think this episode is a good example of what is wrong with betting on ideas.  Betting tends to lock people into positions, gets them rooting for one outcome over another, it makes the denouement of the bet about the relative status of the people in question, and it produces a celebratory mindset in the victor.  That lowers the quality of dialogue and also introspection, just as political campaigns lower the quality of various ideas — too much emphasis on the candidates and the competition.  Bryan, in his post, reaffirms his core intuition that labor markets usually return to normal pretty quickly, at least in the United States.  But if you scrutinize the above diagram, as well as the lackluster wage data, that is exactly the premise he should be questioning.

As I’m the only one in this exchange fessing up to what I got wrong, and what I still don’t understand, and what the complexities are, in a funny way…I feel I’m the one who won the bet.

Deutsche Bank AG became the largest lender in at least four years to feel compelled to reassure investors and employees that it has enough cash to pay its debts.

Germany’s biggest bank said in a statement Monday that it has more-than-sufficient means to pay coupons on its riskiest debt both this year and in 2017. Deutsche Bank also published a note to employees from Chief Financial Officer Marcus Schenck that said the firm’s “capital and risk position remains strong.”

The cost of protecting Deutsche Bank’s debt against default has more than doubled this year, while its stock trades at about one-third of the company’s liquidation value.

Here is the article, here are additional links on the situation, few if any are positive.  It is worth repeating that we don’t actually know the end of the story for the strange economic situation much of the world has been in for some number of years now…

The latest trend is social welfare programs to give free food to dogs and other pets (NYT):

The pantries have become part of a broader movement among animal welfare organizations, pet lovers and others that aims to reduce the population of animals in shelters by assisting pet owners before they resort to giving up their companions. The ASPCA has awarded $400,000 in grants since 2010 to 121 organizations nationwide to support pantries, food banks, and other programs that distribute free food for pets.

If you are wondering, this seems to involve both private and public funds, I am not sure of the ratios.  In a nutshell, here is the debate:

“I understand why this is important, but half the food pantries in New York City don’t have enough food to meet human needs,” Mr. Berg said, noting that he was a cat owner. “We should have fully stocked pantries for humans before we feed pets.”

Supporters of the pantries counter that they are, in fact, helping people by helping their pets, citing research that shows pets can help lower stress and blood pressure, improve moods, and provide emotional comfort to their owners.

I think more in terms of incidence.  Under one hypothesis, the owners will feed their pets in any case, so this is almost as good as a pure cash transfer to the owners.  Under another hypothesis, the transfers postpone a needed and beneficial reallocation of the dogs to wealthier owners.  Under yet another approach, the dogs eat more and reap most of the benefits.  Alternatively, in a Beckerian model, the owners may now feed the dogs more but take them on fewer walks, thereby capturing the value of the transfer.  Longer-run effects operate on the total quantity of dogs and their allocation across income classes.  How much better is it for a dog to have a wealthier owner?

Defer to the Algorithm

by on February 6, 2016 at 1:39 pm in Current Affairs, Economics, Web/Tech | Permalink

A BuzzFeed article predicts that Twitter will soon move from a time-ordered feed to an algorithmic feed, one that shows you tweets that it predicts you will like before it show you lesser-ranked tweets. Naturally, twitter exploded with outrage that this is the end of twitter.

My own tweet expresses my view ala Marc Andreessen style:

It is peculiar that people are more willing trust their physical lives to an algorithm than their twitter feed. Is the outrage real, however, or will people soon take the algorithm for granted? How many people complaining about algorithmic twitter don’t use junk-email filters? I want ALL my emails! Only I can decide what is junk! Did junk email filters ruin email or make it better?

Facebook moved to an algorithm years ago. At the time, the move caused complaints but I think algorithmic feed has made Facebook more relevant, especially in recent years when the algorithm has gotten quite good. The profits agree with my assessment. Many people don’t understand that there is no serious alternative to an algorithmic feed because most people’s uncurated feeds contain well over a thousand posts every day. It’s curate or throw material out at random.

Think of the algorithm as an administrative assistant that sorts your letters, sending bills to your accountant, throwing out junk mail, and keeping personal letters for your perusal. The assistant also reads half a dozen newspapers before you wake to find the articles he thinks that you will most want to read that morning. Who wouldn’t want such an assistant? Moreover, Facebook has billions of dollars riding on the quality of its assistant algorithms and it invests commensurate resources in making its algorithm more and more attuned to our wants and needs.

It’s not simply that the algorithms are good and getting better it’s that the highest productivity people will use their human intelligence to complement machine intelligence. That means trusting the machine to curate millions of items, bringing only the most important to your attention, and then using human intelligence to take action on the most important items. By trusting the machine intelligence to filter, you can open yourself up to a much wider space of information. I have many more friends on Facebook than I have IRL because I trust the algorithm to bring me only the best of my friends on any given day. A twitter algorithm will mean that I can follow more people without being overwhelmed. Even when the filter is imperfect, you are more likely to discover something of importance from 100,000 items imperfectly filtered to 100 than from 1000 items perfectly filtered to 100.

As Tyler argued in Average is Over, the future belongs to people who can defer to the algorithm.

The break in the prison population’s unremitting growth offers an overdue reprieve and a cause for hope for sustained reversal of the nearly four-decade growth pattern. But any optimism needs to be tempered by the very modest rate of decline, 1.8 percent in the past year. At this rate, it will take until 2101 — 88 years — for the prison population to return to its 1980 level.

And this:

Other developments should also curb our enthusiasm. The population in federal prisons has yet to decline. And even among the states, the trend is not uniformly or unreservedly positive. Most states that trimmed their prison populations in 2012 did so by small amounts — eight registered declines of less than 1 percent. Further, over half of the 2012 prison count reduction comes from the 10 percent decline in California’s prison population, required by a Supreme Court mandate. But even that state’s achievement is partly illusory, as it has been accompanied by increasing county jail admissions.

Three states stand out for making significant cuts in their prison populations in the past decade: New York (19 percent), California (17 percent), and New Jersey (17 percent). The reductions in New York and New Jersey have been in part a function of reduced crime levels, but also changes in policy and practice designed to reduce the number of lower-level drug offenders and parole violators in prison. But the pace of reductions in most other states has been quite modest. Moreover, 22 states still subscribed to an outdated model of prisoner expansion in 2012.

There is more here from Marc Mauer and Nazgol Ghandnoosh.

The authors are Christopher H. Achen and Larry M. Bartels, and the subtitle is Why Elections Do Not Produce Representative Government.  This book is brutally depressing, not to mention very well presented, though I cannot say the core message is surprising at this point.  Voters choose on the basis of partisan loyalties, and these days party voting has a much bigger influence on state and local elections than it used to.  So where is the accountability?  Some voters engage in “retrospective voting,” but on the basis of super-short time horizons, and often the voters hold politicians accountable for matters those politicians cannot control, even storms and other natural disasters.  The authors really do demonstrate these points with lots of rigorous analysis.

OK, now a segue.  Given all this, the natural and appropriate policy response should be to a) expand the responsibilities of democratic government, or b) consider limiting the responsibilities of democratic government?

You are allowed only two guesses…

The book is due out in April.

Bank of Japan should call them willie wonka bonds “YOU GET NOTHING. yOU LOSE!”

Who is advising Japan? Forcing banks to lend all ¥ will not get 2% inflation. It creates loanees market with even lower rates. Dumb move

Negative interest rates in Japan is blowing my mind

Here is his Twitter account, here is the Bloomberg story.  They promised us flying cars, and all we got was…

Jose Canseco

From Peter A. Petri and Michael G. Plummer (pdf):

This Working Paper estimates the effects of the Trans-Pacific Partnership (TPP) using a comprehensive, quantitative trade model, updating results reported in Petri, Plummer, and Zhai (2012) with recent data and information from the agreement. The new estimates suggest that the TPP will increase annual real incomes in the United States by $131 billion, or 0.5 percent of GDP, and annual exports by $357 billion, or 9.1 percent of exports, over baseline projections by 2030, when the agreement is nearly fully implemented. Annual income gains by 2030 will be $492 billion for the world. While the United States will be the largest beneficiary of the TPP in absolute terms, the agreement will generate substantial gains for Japan, Malaysia, and Vietnam as well, and solid benefits for other members. The agreement will raise US wages but is not projected to change US employment levels; it will slightly increase “job churn” (movements of jobs between firms) and mpose adjustment costs on some workers.

I know plenty of people who don’t like parts of this deal, but not any who have produced a better net estimate of what it will do.

Hat tip goes to the ever-energetic Brad DeLong.

The Seattle company plans as many as 400 bookstores, Sandeep Mathrani, chief executive of large mall operator General Growth Properties Inc., said on an earnings call with analysts Tuesday.

“You’ve got Amazon opening brick-and-mortar bookstores and their goal is to open, as I understand, 300 to 400,” said Mr. Mathrani in response to a question about mall traffic.

That compares to the 640 stores Barnes & Noble Inc. operates and the 255 locations Books-A-Million Inc. said it had as of last summer.

The WSJ story is here, here are others.  What is the underlying business plan?  To make these iconic locations like Apple stores?  To treat all future business, in all sectors, as depending on the focality of the company behind it?  To start with books, move on to other items, and eventually steal middle-class and upper-middle class consumers away from Walmart?  Somehow use these stores to lock people in Amazon Prime?  Do you have other hypotheses?  Is this overconfident folly, or is it the “for good” return of brick and mortar bookstores to our lives?

Here is the video, the podcast, and the transcript.  Kareem really opened up.  Here is the summary:

Kareem Abdul-Jabbar joins Tyler Cowen for a conversation on segregation, Islam, Harlem vs. LA, Earl Manigault, jazz, fighting Bruce Lee, Kareem’s conservatism, dancing with Thelonious Monk, and why no one today can shoot a skyhook.

Maybe you think of Kareem as a basketball player, but here is my introduction:

Kareem Abdul-Jabbar is one of America’s leading public intellectuals. I would describe him as an offshoot of the Harlem Renaissance, and what he and I share in common is a fascination with the character of Mycroft Holmes, the subject of Kareem’s latest book — and that of course, is Sherlock Holmes’s brother.

Here is Kareem:

I did know Amiri [Baraka]. I think the difference is I believe in what happened in Europe during what they call the Enlightenment. That needs to happen to black Americans, absolutely a type of enlightenment where they get a grasp of what is afflicting them and what the cures are.

I think that the American model is the best in the world but in order to get everybody involved in it we have to have it open to everyone. That hasn’t always been the case.

The most under-appreciated Miles Davis album?

For me [Kareem], the most under-appreciated one is Seven Steps to Heaven. And that shows, I think, Miles’ best group. There’s a big argument, what was Miles’ best group, the one that had Cannonball Adderley, Coltrane, Bill Evans, and Philly Joe Jones and Red Garland or Herbie Hancock, Ron Carter, Tony Williams, and Wayne Shorter?…number two is Porgy and Bess.

He cites Chester Himes as the underappreciated figure of the Harlem Renaissance.  And Kareem thinks like an economist:

It [my instruction] was going well with Andrew Bynum, but Andrew finally got to sign his contract for $50 million, and then at that point Andrew thought that I didn’t know anything and that he didn’t have to listen to me, and we don’t know where Andrew is right now.

Read or hear also his very interesting remarks on Islam, and where its next Enlightenment is likely to come from, not to mention Kareem on the resource curse and of course his new book (and my Straussian read of it).  And Kareem on his favorite movies, starting with The Maltese Falcon.  Self-recommending!

Kareem

No, I’m not in Iowa, but I’ve never covered it before, and today seems like as good a day as any.  Here goes:

1. Painter: Grant Wood.  Here is an interpretative take on American Gothic.  It’s not by the way man and wife in the picture, but rather Wood’s sister standing next to the local dentist.

2. Novelist: I draw a blank, sorry people…Does it count that Joe Haldeman (The Forever War) was a product of the Iowa Writer’s Workshop?  There must be other examples as well.

3. Hero: Norman Borlaug.

4. Actor: John Wayne is from Iowa, but I can’t call him a favorite.  I guess he is my favorite version of…John Wayne.  If that.  Can one call Johnny Carson an actor?  I never took to him either.

5. Jazz musician: Yes there is one, Bix Beiderbecke.  Art Farmer too, and also Charlie Haden.  Yet how rarely one hears of the “Iowa jazz tradition.”

6. Guitarist: Dick Dale, don’t by the way forget his Lebanese background, which you can hear in his riffs.

7. Movie, set in: What’s Eating Gilbert Grape?  Honorable mention to the more obvious Field of Dreams, an OK but not great film in my view.

The bottom line: Who would have thought “jazz musician” would be the strongest category here?  Those Iowans are so busy with their jazz, it is amazing they have time to lobby for their ethanol subsidies.

81.105

That is a new paper by Ali Faraji-Rad and Michel Tuan Pham, here is the abstract:

Uncertainty is an unavoidable part of human life. How do states of uncertainty influence the way people make decisions? We advance the proposition that states of uncertainty increase the reliance on affective inputs in judgments and decisions. In accord with this proposition, results from six studies show that the priming of uncertainty (vs. certainty) consistently increases the effects of a variety of affective inputs on consumers’ judgments and decisions. Primed uncertainty is shown to amplify the effects of the pleasantness of a musical soundtrack (study 1), the attractiveness of a picture (study 2), the appeal of affective attributes (studies 3 and 4), incidental mood states (study 6), and even incidental states of disgust (study 5). Moreover, both negative and positive uncertainty increase the influence of affect in decisions (study 4). The results additionally show that the increased reliance on affective inputs under uncertainty does not necessarily come at the expense of a reliance on descriptive attribute information (studies 2 and 5), and that the increased reliance on affect under uncertainty is distinct from a general reliance on heuristic or peripheral cues (study 6).

The pointer is from Cass Sunstein on Twitter.  File under “The culture that is Iowa”?

Every year since 2006 more democracies have experienced erosion in political rights and civil liberties than have registered gains, as we find in our annual Freedom in the World report. In all, 110 countries, more than half the world’s total, have suffered some loss in freedom during the past 10 years.

That is from Mark P. Lagon and Arch Puddington at the WSJ.  I would like to see a good theory of how liberty, democracy, and liberalism — or however we wish to characterize that bundle — comove across the globe, in both positive and negative times.

Mexican non-oil exports to USA in December (y/y): -4.5%. Excluding autos: -8.7%.

That is from Genevieve Signoret, via this source.

It’s funny how these numbers seem to indicate someone is starting to enter a recession.  Who might that be?  Maybe it’s just noise, I don’t see any other mediocre economic reports wandering around these parts…  Or maybe it’s Mexico that’s the problem

Andrew Batson thinks it is simpler than many people make it out to be:

…these analyses…fail to even mention the most straightforward and direct explanation of why China’s growth is much slower today than it was in say, 2010 or 2007. It’s not like it’s a secret. From about 2003 to about 2010 China had the biggest construction boom of modern times and probably in all of human history. Then in 2011-12 the construction boom ended. That’s it. Really, that’s all you need to know. Well, you might need one more fact: housing and construction account for as much of a third of China’s GDP, once all their indirect linkages to other sectors are considered. I think a housing downturn explains very well the timing, severity and distribution of the economic slowdown that has actually occurred.

Here is the full post, which also criticizes the idea of the middle income trap.  I would add two points, which may represent a deviation from Batson’s argument.  First, I don’t think the Chinese growth slowdown is as sudden as a culling of media reports might suggest.  Second, to the extent the contraction is sudden, it is perhaps Chinese investors have woken up to the idea of a risk premium, and realized there is no eternal ten or even seven percent growth to validate so-so quality investments.  The dynamics of information arrival can compress economic adjustments into “too short” a space, a common theme in business cycle theory and not an issue restricted to contemporary China.