2. Markets in everything: what do you think an LBJ tweet goes for?
2. Markets in everything: what do you think an LBJ tweet goes for?
Bernanke believes QE works, but having been caught off-guard once before, in 2007-2008, he doesn’t fully trust his own judgment. He fears some risk of bubbles, or excess private disintermediation, in either case resulting from low interest rates. He lets Tarullo and Stein carry related messages to the markets to signal possible fears without having to endorse them.
Let’s say he assigns these risky scenarios a fairly small p = 0.05. Still, another financial collapse would be a disaster, all the more for political economy reasons. Bernanke has spent down his own political capital and these days Republicans are more likely to be obstructionists. Fear of that disaster leads him to withdraw QE sooner than his “most likely to be true” opinion thinks prudent. Economists respond by defending the “most likely to be true” opinion, and by arguing moralistically rather than probabilistically. That doesn’t convince Bernanke, because said economists can only convince him that they are likely right, not that he should obliterate his p = 0.05 fear of being wrong. The current policy course continues, early withdrawal from QE is contemplated, and economists complain all the more. Outside observers find it hard to understand the disconnect.
Let’s say that everything is known about everybody, or can be known with some effort. The people who have the most to lose are powerful people who have committed some wrongdoing, or who have done something which can be presented as wrongdoing, whether or not it is. Derelicts with poor credit ratings should, in relative terms, flourish or at least hold steady at the margin.
It is not obvious that the President, Congress, and Supreme Court should welcome such an arrangement. Nor should top business elites. More power is given to the NSA, or to those who can access NSA and related sources, and how many interest groups favor that?
Therein lies a chance for reform.
4. It seems that more people are renting tires, at net price 3x-4x retail. Think of it as “first world microcredit.”
I.B.M.’s Watson, the supercomputing technology that defeated human Jeopardy! champions in 2011, is a prime example of the power of data-intensive artificial intelligence.
Watson-style computing, analysts said, is precisely the technology that would make the ambitious data-collection program of the N.S.A. seem practical. Computers could instantly sift through the mass of Internet communications data, see patterns of suspicious online behavior and thus narrow the hunt for terrorists.
Both the N.S.A. and the Central Intelligence Agency have been testing Watson in the last two years, said a consultant who has advised the government and asked not to be identified because he was not authorized to speak.
You will find it here, and clicking through the side show of previous innovations, and their history, is fascinating. I enjoyed this part of the accompanying write-up from Hugo Lindgren:
On his blog, Marginal Revolution, Cowen furthers his point by declaring sarcastically that “there is no great stagnation” and providing links to silly products or applications of technology, like a machine that tosses popcorn into your mouth from up to 15 feet away. It’s called The Popinator. Someone thought this up — first as a marketing stunt, but now they’re trying to make an actual product. Someone also thought up the Ostrich Pillow, a big, comfy thing that you can stick your head into and nap in public places. My favorite of Cowen’s collection is a gun for shooting salt pellets at insects — the Bug-A-Salt! I also like the remote-controlled cockroach, a technology which has not yet been commercialized. But maybe one day.
Cowen’s point is that under the hood of our hallowed free market is a bazaar of nutty, half-cocked ideas which do not advance the greater cause of humanity one tiny bit. But there’s another interpretation, too, which is: The sheer volume and range of these inventions demonstrate a rapidly growing range of problem solvers with the tools to turn their ideas into tangible things.
You can read about the history of the ant farm here.
5. The problem is too little dynamism, not too much, and this relates to TGS vs. “Race Against the Machine” as explanations of our recent past.
Remember the regime of creative ambiguity when it came to Fed bailouts? You kind of expected one, but weren’t totally sure what might come, and so the banking sector felt safe but not absolutely guaranteed on the side of the creditors. Post-Lehman, those days seem to be over and now the moral hazard problem looms larger.
Perhaps we had a regime of creative ambiguity when it came to privacy and government surveillance. You (or at least I) thought the government was spying on you, but there was some ambiguity as to how much. You could acquiesce to the previous status quo, without fearing it would get worse, because it was not commonly recognized public knowledge that so much spying was going on. Maybe you figured you could tolerate a 0.8 probability of that level of spying because there were checks on it becoming worse, more extensive, more selective, and so on.
But now that previous level of spying is common knowledge (or at least part of it is common knowledge, I suspect there are further revelations to come). At the same time, the IRS, Verizon, and other scandals are common knowledge too, all of a sudden.
The old equilibrium is perhaps no longer stable. People may even be fine with that level of spying, if they think it means fewer successful terror attacks. But if they acquiesce to the previous level of spying too openly, the level of spying on them will get worse. Which they do not want.
On top of all that, the common knowledge of the old spying also may make the old spying less effective in purely practical terms, as potential suspects adjust their behavior. That also may lead a risk-averse government to pursue additional and more intrusive means of spying.
So if the status quo of a few weeks ago is no longer an equilibrium, what happens next?
I predict we will see more spying and more intrusive spying. You should not think that recent events will simply cement a previous status quo in place, rather it moves us down a very particular path and probably makes the entire problem worse. The age of creative ambiguity in surveillance is over and probably not for the better.
8. Who owns MERS?
That is the new paper (pdf) by Acemoglu, Autor, Dorn, and Hanson, and here is the abstract:
Even before the Great Recession, U.S. employment growth was unimpressive. Between 2000 and 2007, the economy gave back the considerable jump in employment rates it had achieved during the 1990s, with major contractions in manufacturing employment being a prime contributor to the slump. The U.S. employment “sag” of the 2000s is widely recognized but poorly understood. In this paper, we explore an under-appreciated force contributing to sluggish U.S. employment growth: the swift rise of import competition from China. We find that the increase in U.S. imports from China, which accelerated after 2000, was a major force behind recent reductions in U.S. manufacturing employment and that through input-output linkages with the rest of the economy this negative trade shock has helped suppress overall U.S. job growth.
If you ask me what knowledge academic economics generated in the past year, one answer is a better sense of how much the rise of China has had an impact on labor markets in other countries.
Elsewhere in labor economics, the econ blogosphere very much underrates and indeed sometimes even scorns “matching theory.” But this new paper by Larry Katz et.al. (pdf) suggests a calibrated matching model can explain almost all of the rise in observed long-term unemployment. You will note that this is appended to other, more macro theories of unemployment to “fill in the boxes” and should not be considered a substitute for them.
2. One (not the only) behavioral analysis of Obamacare. From a man of the cloth (but not the Vicar of Aldeburgh).
4. How do you cheat with computer aid in rapid (chess) games when there are plenty of observers? Note this is not mainly a question about chess.
5. Food markets in everything: gravy candy.
1. Jeff Sachs on Turkey, published on May 27 (the point is not to criticize Sachs, rather nothing he wrote about Turkey seemed to be wrong at the time and arguably it is still not wrong).
3. Dani Rodrik recommends this piece on Turkey.
6. Are Japanese kids too noisy? Some people think so.
That is the title of a new Reddit thread, reproduced here. Overall I am not blown away by the nominations and I find few of them in my own everyday life. Here is one example:
ALON – transparent aluminium, you can have a window that don’t break!!!
Here is further information, with photos. Cool enough, but not as good as cheap quality education and health care. And it costs 20k per square meter, at least according to that article.
I’m ready to call the great stagnation over when driverless cars are in the hands of the middle class, but that’s still a while away. Steady deflation for education and health care expenditures would do it too, and I can see this will come for education but not for health care. As for Google Glass, I will review it once they sell me one. I’d also claim the end of stagnation if we saw a 2% yearly rise in the median real wage on a sustained basis, say most of the years out of a ten-year period.
In the meantime, here is a robot which pours you a beer.
For the pointer I thank Max Roser.