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From Brinca, Chari, Kehoe, and McGrattan, there is a new NBER paper “Accounting for Business Cycles“:

First with the notable exception of the United States, Spain, Ireland, and Iceland, the Great Recession was driven primarily by the efficiency wedge.  Second, in the Great Recession, the labor wedge plays a dominant role only in the United States, and the investment wedge plays a dominant role in Spain, Ireland, and Iceland.  Third, in the recessions of the 1980s, the labor wedge played a dominant role only in France, the United Kingdom, Belgium, and New Zealand.  Finally, in the Great Recession the efficiency wedge played a much more important role and the investment wedge played a less important role than they did in the recessions of the 1980s.

You don’t have to agree with each and every claim there to see that a simple AS-AD model won’t give you enough structure to seriously address such questions.  And:

The first misconception is that efficiency wedges in a prototype model can only come from technology shocks…In our judgment, by far the least interesting interpretation of efficiency wedges is as narrowly interpreted shocks to the blueprints governing individual firm production functions.

As a good first-order approximation, everything you read about “real business cycle theory” from its non-practitioners in the popular realm is wrong.  Except the very phrase “real business cycle theory” isn’t even the correct term here.  Better would be “contemporary macroeconomics,” although then the sense-reference distinction is going to play havoc with the first sentence of this paragraph.

Assorted Monday links

by on September 26, 2016 at 11:39 am in Uncategorized | Permalink

1. Will humans wipe out rats?

2. Theodore W. Anderson, econometrician, has passed away.

3. Punishment in a world of life extension.

4. NYT reviews Abbey Road in 1969 and basically slams it.  The reviewer hated George’s songs on the album and confuses Paul’s voice with John’s, among other mistakes.

5. The visual design problems with U.S. coins.

6. The new Aguiar, Bils, Charles, and Hurst paper on leisure and the decline of work (pdf): “We use estimated “Leisure Engel Curves” to calculate that changes in leisure technology for computer goods broadly, and video games in particular, shift the labor supply curve by an amount between 10 and 25 percent of the observed decline in market work hours for prime age men and between 20 and 45 percent of the decline in market work hours for LEYM [less educated young men].”

Sunday assorted links

by on September 25, 2016 at 2:30 pm in Uncategorized | Permalink

1. Doubts about the supposed Chinese skeletons found in Rome, 3-5th century A.D.  Still, China to Rome just isn’t that far, and it is naive to believe this kind of contact didn’t exist.  Study the history of the Polynesians.

2. The main influences on Sam Bowman.

3. Puffin topology, with violin (short video).

4. Afghan Bistro in Springfield, the best Afghan food I’ve had, get the Aushak, kadu, and eggplant.

5. Tarkovsky’s Ivan’s Childhood, newly released in an accessible, English subtitled form, shows that even his “minor” works are better than almost anything else.

Saturday assorted links

by on September 24, 2016 at 2:06 pm in Uncategorized | Permalink

1. Peruvian interview with me (in Spanish).

2. Details on Doug Irwin’s just-delivered history of trade book.

3. Wells on Joyce: “And while you were brought up under the delusion of political suppression I was brought up under the delusion of political responsibility.”

4. The Dictator game with varying female beauty.

5. Board games non-clearing markets in everything: Scrabble yn Gymraeg, or in other words Scrabble in Welsh.  So far the five copies sitting in Waterstone’s have not been sold after two years.  Perhaps that is because the “y” and the “w” are worth only one point each.  “Twmffat” for the bonus!

6. “The paper attributes one-third to one-fifth of the decline in work hours by less-educated young men to the rising use of technology for entertainment — mainly video games.”  It’s not Scrabble yn Gymraeg keeping them at home…Link here, Alan Krueger calls it “strong evidence.”  Summers (FT) seems to endorse the hypothesis in passing.

Friday assorted links

by on September 23, 2016 at 10:58 am in Uncategorized | Permalink

1. Father knows best infrastructure.

2. Why is milk in the back of the supermarket?

3. Rolling drone delivery is coming to D.C.

4. China and Japan, “In fact, when staying in Japanese hotels, I turn on all the faucets as a way to relieve my anger! But it is of no use! We must do better in all ways! Let’s go!”  Most polled Chinese disapprove, although eight percent expressed a desire to do the exact same thing.

5. Cow dung capitalism.

Thursday assorted links

by on September 22, 2016 at 12:06 pm in Uncategorized | Permalink

1. 16 economists on Brexit (videos).

2. My post on Romneycare, from ten years ago.

3. Does inequality lead to credit growth?  Testing the Rajan hypothesis.

4. Maybe Fitbit doesn’t work?  And the NYT version.

5. I don’t agree with everything in this Zero Hedge post, and some of it is flat out wrong, but it does cast serious doubt on the new, happy median income growth figures: “the Census Bureau’s own report shows that the median nominal earnings of full-time male workers in 2015 grew by 1.6% and for full-time female workers by 2.8%. That hardly squares with 5.7% average aggregate growth of incomes for all workers—unless main street households was suddenly showered with windfalls from stock dividends they don’t own, bank accounts that pay no interest or rental incomes from properties registered in someone else’s name.”

6. The culture that is youth sports.

*A Notable Woman*

by on September 22, 2016 at 3:09 am in Uncategorized | Permalink

The descriptive subtitle is The romantic journals of Jean Lucey Pratt.  She was a British woman who started keeping a journal in 1925 at the age of fifteen, and continued until her death in 1986.  Usually books like this bore me after fifty pages (or less), but this one I am finding consistently entertaining.  Here is one bit from her cruise ship voyage at age 23:

My physical needs as a normal woman are badly wanting fulfillment.  I’ve got to somehow make them understand that I have no anchor; that an ordinary and full-sexed woman must centre her interests on one man, otherwise she must inevitably go to pieces.

I’ve learnt a lot from this voyage, and one thing from Nev which is forceful and important — that platonic friendships are impossible.  To show my trust in my little boyfriends I left my door unbolted; although they had drunk too much, I knew I could trust them.  But I’ve bolted it again.

She lost her virginity eight years later, at age 31:

When he had played with me in the French manner (too long I think) to work me up to the Crisis, the Big Moment Passionate and so on, I left him to make my preparations and then lay back on the bed and said in a sepulchral voice, “Now I’m ready for the worst!”  Well, it was damned painful, though I didn’t know it was going to be.

I have quite recovered from my pain in the stomach and am in a rare good humour, have been all day.  It is such a relief to feel one is no longer completely ignorant.

Here is one good review of the book, with a photo of the diarist as well.  Here is another review.

According to Donner: “The whole point of the game [is] to prevent an artistic performance.” The former world champion Garry Kasparov makes the same point. “The highest art of the chess player,” he says, “lies in not allowing your opponent to show you what he can do.” Always the other player is there trying to wreck your masterpiece. Chess, Donner insists, is a struggle, a fight to the death. “When one of the two players has imposed his will on the other and can at last begin to be freely creative, the game is over. That is the moment when, among masters, the opponent resigns. That is why chess is not art. No, chess cannot be compared with anything. Many things can be compared with chess, but chess is only chess.”

That is Stephen Moss at The Guardian.  Along related lines, I very much enjoyed Daniel Gormally’s Insanity, Passion, and Addiction: A Year Inside the Chess World.  It’s one of my favorite books of the year so far, but it’s so miserable I can’t recommend it to anyone.  It’s a book about chess, and it doesn’t even focus on the great players.  It’s about the players who are good enough to make a living — ever so barely — but not do any better.  It serves up sentences such as:

Surely the money in chess is so bad that this can’t be all you do for a living?  But in fact in my experience, the majority of chess players rated over 2400 tend to just do chess.  If not playing, then something related to it, like coaching or DVDs.  That’s because we’re lazy, so making the monumental effort of a complete change in career is just too frightening a prospect.  So we stick with chess, even though the pay tends to be lousy, because most of our friends and contacts are chess players.  Our life is chess.  As a rough estimate, I would say there are as many 2600 players making less than £20,000 a year.

And:

Stability. I had this conversation with German number one Arkadij Naidisch at a blitz tournament in Scotland about a year ago. (there I go, name-dropping again.)  He suggested that a lot of people don’t achieve their goals because they just aren’t stable enough.  They’ll have a fantastic result somewhere, but then that’ll be let down by a terrible tournament somewhere else.

…The problem is it’s hard to break out of the habits of a lifetime.  Many times at home I’ve said to myself while sitting around depressed about my future and where my chess is going, “tomorrow will be different.  I’ll get up and study six-eight hours studying chess.”  But it never happens.

Overall biography and autobiography are far too specialized in the lives of the famous and successful.

Wednesday assorted links

by on September 21, 2016 at 12:20 pm in Uncategorized | Permalink

1. Redux on my 2013 post “A simple theory of recent American intellectual history.

2. Shanty mega-structures.

lagos-05_makoko-canal_1200

3. Adam Gopnik on Jane Jacobs.

4. “A dedicated hedgehog officer has started work after seeing off worldwide competition for the role.” (the culture that is Ipswich)

Tuesday assorted links

by on September 20, 2016 at 2:31 pm in Uncategorized | Permalink

1. Bill Cosby was once an important role model (pdf).

2. In fact, you can’t make that much money naming Chinese babies.

3. “But now there is a stochastic, episodic nature to many careers. As workers get older, potential employers become more suspicious of their skills, not more confident in them. As a result, you often meet people who had been happiest at work in middle age, and then moved down to a series of positions they were overqualified for and felt diminished in.”  That is from David Brooks.

4. Is Peter Thiel right about Chicago?

5. Explaining preferences for redistribution.

That is my latest Bloomberg column, here is one excerpt:

Looking at a broad swath of history, I see three major forces that can make financial systems safer: people being scared by recent events, solid economic growth and reduced debt in comparison to the value of equity. The financial crisis gave us the first on that list as perhaps its main “gift” (for now), but Dodd-Frank may have worsened economic growth problems.

On the plus side, we might like to think that Dodd-Frank improved the debt-equity balance by pushing banks to raise more capital. But that, too, now stands in doubt.

Last week Natasha Sarin and Lawrence H. Summers of Harvard University released a paper questioning whether Dodd-Frank has made big U.S. banks safer at all. The authors look at a variety of measures, including options prices, the ratio of market prices to book values, bank share volatility relative to overall market volatility, credit-default swap spreads and the value of preferred equity shares for banks. In every metric, it seems that the big banks are at least as risky as they were before the crisis, in part because they have lower capital values.

And this:

It’s a common economic prescription that regulation should insist that banks carry high levels of capital to withstand losses in bad times. But although Dodd-Frank raised statutory capital requirements, it may have drained banks of some of their true economic capital by regulating and sometimes prohibiting valuable banking activities. The ratio of market price to book value has declined for the biggest banks, and that is one sign of falling values for true economic capital, even though banks have met the letter of law by increasing capital as the regulations specified. Sarin and Summers note that measures of bank capital, as defined by regulators rather than the market, have little predictive power for bank failures.

Do read the whole thing.

Paul Krugman is upset that many Millennials are toying with the idea of voting for Gary Johnson rather than Hillary Clinton.  He offers a number of arguments, here is one of them:

What really struck me, however, was what the [Libertarian Party] platform says about the environment. It opposes any kind of regulation; instead, it argues that we can rely on the courts. Is a giant corporation poisoning the air you breathe or the water you drink? Just sue: “Where damages can be proven and quantified in a court of law, restitution to the injured parties must be required.” Ordinary citizens against teams of high-priced corporate lawyers — what could go wrong?

That is the opposite of the correct criticism.  The main problem with classical libertarianism is that it doesn’t allow enough pollution.  Under libertarian theory, pollution is a form of violent aggression that should be banned, as Murray Rothbard insisted numerous times.  OK, but what about actual practice, once all those special interest groups start having their say?  Historically, under the more limited government of the 19th century, it was big business that wanted to move away from unpredictable local and litigation-driven methods of control, and toward a more systematic regulatory approach at the national level.  There is a significant literature on this development, starting with Morton Horwitz’s The Transformation of American Common Law.

If you think about it, this accords with standard industrial organization intuitions.  Established incumbents prefer regulations that take the form of predictable, upfront high fixed costs, if only to limit entry.  And to some extent they can pass those costs along to consumers and workers.  The “maybe you can sue me, maybe you can’t” regime is more the favorite of thinly capitalized upstarts that have little to lose.

So under the pure libertarian regime, big business would come running to the federal government asking for systematic regulation in return for protection against the uncertain depredations of the lower-level courts.  It is fine to argue the court-heavy libertarian regime would be unworkable for this reason, or perhaps it would collapse into a version of the status quo.

That would be a much more fun column: “Libertarian view untenable, implies too high a burden on polluters.”  I’m not sure that would sway the Bernie Brothers however.

Some of the criticisms of libertarianism strike me as under-argued:

And if parents don’t want their children educated, or want them indoctrinated in a cult…Not our problem.

Rates of high school completion were below 70% for decades, until recently, in spite of compulsory education.  Parents rescuing children from the neglect of the state seems at least as common to me as vice versa.

And what is the status quo policy on taking children away from parents who belong to “cults”?  Unusual religions can be a factor in contested child custody cases (pdf), but in the absence of evidence of concrete harm, such as beatings or sexual abuse, the American government does not generally take children away from their parents, cult or not.  Germany and Norway differ on this a bit, for the most part this is, for better or worse, the American way.  That’s without electing Gary Johnson.

By the way, Gary Johnson slightly helps Hillary Clinton.  Although probably not with New York Times readers.

Monday assorted links

by on September 19, 2016 at 2:16 pm in Uncategorized | Permalink

1. The beer pipe conditional public goods assurance game culture that is Belgium (NYT).

2. How meaning varies between speech and its typed transcript.

3. Dani Rodrik Op-Ed on how to do globalization right (NYT).

4. The classic books are making a commercial comeback.

5. $30 markets in everything.

6. Who favors free movement of labor within the EU?  This tweet and graph makes a good point, but given status quo bias I don’t find the numbers as overwhelming as does O’Rourke.  p.s. Luxembourg and Latvia are the top two in support.

That is my latest Bloomberg column, hardly anyone has a consistent and evidence-based view on this deal.  Here is one bit:

Critics who dislike Monsanto for its leading role in developing genetically modified organisms and agricultural chemicals shouldn’t also be citing monopoly concerns as a reason to oppose the merger — that combination of views doesn’t make sense. Let’s say for instance that the deal raised the price of GMOs due to monopoly power. Farmers would respond by using those seeds less, and presumably that should be welcome news to GMO opponents.

Yet on the other side:

What does Bayer hope to get for its $66 billion, $128-a-share offer? The company has argued that it will be able to eliminate some duplicated jobs and expenses, negotiate better deals with suppliers and invest more funds in research and development. Maybe, but the broader reality is less cheery. There is a well-known academic literature, dating to the early 1990s, showing that acquiring firms usually decline in value after tender offers, especially after the biggest deals. Mergers do not seem to make companies more valuable or efficient.

And this:

The whole Bayer-Monsanto case is a classic example of how a vociferous public debate can disguise or even reverse the true issues at stake. If Bayer fails to close the deal for Monsanto, Bayer shareholders may be the biggest winners. The biggest losers from a failed deal may be its opponents, who will spend the rest of their lives in a world where misguided judgments of corporate popularity have increasing sway over laws and regulations.

Do read the whole thing.

Haven’t you noticed this?

I have a simple hypothesis.  No matter what the media tells you their job is, the feature of media that actually draws viewer interest is how media stories either raise or lower particular individuals in status.  (It’s a bit like “politics isn’t about policy.”)  That’s even true for this blog, though of course that is never my direct intention.

But now you can see why people get so teed off at the media.  The status ranking of individuals implied by a particular media source is never the same as yours, and often not even close.  You hold more of a grudge from the status slights than you get a positive and memorable charge from the status agreements.

In essence, (some) media is insulting your own personal status rankings all the time.  You might even say the media is insulting you.  Indeed that is why other people enjoy those media sources, because they take pleasure in your status, and the status of your allies, being lowered.  It’s like they get to throw a media pie in your face.

In return you resent the media.

A good rule of thumb is that if you resent the media “lots,” you are probably making a number of other emotional mistakes in your political thought.