It is called Bank Underground, a clever title.  There is one interesting post on insurance for driverless cars, and another on deflation risk.

Can you imagine the Fed doing the same?  The bloggy voice and the need for institutional conformity are not always in perfect synch.  Still, perhaps central banks are learning that if they do not define their own image, others will do it for them.

Let’s keep our fingers crossed…

Friday assorted links

by on June 19, 2015 at 10:40 am in Uncategorized | Permalink

1. The world’s largest employers.

2. Rates of return seem to be falling.

3. ” I think it’s fair to say he doesn’t have any argument against my claim, because there are no good arguments against my claim.”  I agree.

4. Ben Casnocha on my dialogues with Thiel and Sachs.

5. Why various Republican proposals would make the problems with Obamacare worse.

6. More on Alice Goffman.

7. Virginia Postrel has further detail on the Paulson grant to Harvard.

8. William Upton on Kansas fiscal policy.  And what is the nature of Rand Paul’s tax plan?

Normative Sociology

by on June 19, 2015 at 7:29 am in Economics, Philosophy | Permalink

Excellent post by Joseph Heath:

The whole “normative sociology” concept has its origins in a joke that Robert Nozick made, in Anarchy, State and Utopia, where he claimed, in an offhand way, that “Normative sociology, the study of what the causes of problems ought to be, greatly fascinates us all”(247). Despite the casual manner in which he made the remark, the observation is an astute one. Often when we study social problems, there is an almost irresistible temptation to study what we would like the cause of those problems to be (for whatever reason), to the neglect of the actual causes. When this goes uncorrected, you can get the phenomenon of “politically correct” explanations for various social problems – where there’s no hard evidence that A actually causes B, but where people, for one reason or another, think that A ought to be the explanation for B. This can lead to a situation in which denying that A is the cause of B becomes morally stigmatized, and so people affirm the connection primarily because they feel obliged to, not because they’ve been persuaded by any evidence.

Let me give just one example, to get the juices flowing. I routinely hear extraordinary causal powers being ascribed to “racism” — claims that far outstrip available evidence. Some of these claims may well be true, but there is a clear moral stigma associated with questioning the causal connection being posited – which is perverse, since the question of what causes what should be a purely empirical one. Questioning the connection, however, is likely to attract charges of seeking to “minimize racism.” (Indeed, many people, just reading the previous two sentences, will already be thinking to themselves “Oh my God, this guy is seeking to minimize racism.”) There also seems to be a sense that, because racism is an incredibly bad thing, it must also cause a lot of other bad things. But what is at work here is basically an intuition about how the moral order is organized, not one about the causal order. It’s always possible for something to be extremely bad (intrinsically, as it were), or extremely common, and yet causally not all that significant.

I actually think this sort of confusion between the moral and the causal order happens a lot. Furthermore, despite having a lot of sympathy for “qualitative” social science, I think the problem is much worse in these areas. Indeed, one of the major advantages of quantitative approaches to social science is that it makes it pretty much impossible to get away with doing normative sociology.

Incidentally, “normative sociology” doesn’t necessarily have a left-wing bias. There are lots of examples of conservatives doing it as well (e.g. rising divorce rates must be due to tolerance of homosexuality, out-of-wedlock births must be caused by the welfare system etc.) The difference is that people on the left are often more keen on solving various social problems, and so they have a set of pragmatic interests at play that can strongly bias judgement. The latter case is particularly frustrating, because if the plan is to solve some social problem by attacking its causal antecedents, then it is really important to get the causal connections right – otherwise your intervention is going to prove useless, and quite possibly counterproductive.

He goes on to discuss four reasons why people are attracted to normative sociology 1) they want to have a causal lever so they blame what they think they can change 2) they don’t want to blame or appear to blaming the victim so they avoid some explanations in favor of others 3) confusing correlation and causation 4) a metaphysical desire for bad things to have big and bad effects.

Addendum: My review of Heath’s book, Enlightenment 2.0.

“Fiscal austerity” is a clever label that somehow has stuck, but I think it is misleading. What has really been going on that Greece has been spending borrowed money, and they kept borrowing at a faster clip than what is sustainable. Suppose you do that as a household. What has to happen? At some point, you need to stop borrowing, you need to live within your means, and you have to either try to repay your debt or default. Everyone would like to spend more than what they receive! And, of course, it limits “growth” if you can no longer do that. But who is supposed to give you the resources for living beyond your means? What gets forgotten with the “fiscal austerity” label is this. Greece is free to borrow as much as they want on private markets, but private markets were no longer willing to lend to Greece. If Europe and the ECB had not stepped in and replaced much of that lost lending, if the debt terms would not have been renegotiated, it would have had a much more drastic effect on fiscal resources in Greece. So, one could argue (and I think it is fair to argue), that the European policies actually were the opposite of “fiscal austerity” compared to the benchmark case of only borrowing on private markets.

The full interview is here, via Garett Jones.  And here is your Greece fact of the day:

The Greek banks might be able to survive [under Grexit] depending on what happens to their liabilities to the Eurosystem but it isn’t encouraging that more than half of their regulatory capital comes from deferred tax assets, which only have value if the banks are profitable and the Greek government has cash to pay.

That is Matthew C. Klein, from a longer post on the pros and cons of Grexit.  And here is my earlier post Is Greece Really Going to Leave the Eurozone?, still a good guide.

Claims about liquidity

by on June 18, 2015 at 2:25 pm in Economics | Permalink

Robin Wigglesworth at FT Capital Markets has a long and interesting post on this currently important topic, most of all for corporate bond markets.  The hot topic these days is why liquidity seems to have dried up along so many fronts at once.  Here is one excerpt:

The causes of these illiquidity phenomena are manifold, and vary from market to market. But Matt King, a senior strategist at Citi, argues that the one common thread is the dominance of central banks over markets.

The paradox, he argues, is that the extra money pumped into the global economy by central banks is leading to “herding” by investors, as they run in and out of markets in a uniform fashion, prodded by shifts in monetary policy.

“Unfortunately, it leads to a rather ominous conclusion,” Mr King writes. “The bouts of illiquidity will continue until central banks stop distorting markets. If anything, they seem likely to intensify: unless fundamentals move so as to justify current valuations, when central banks move towards the exit, investors will too.”

Do read the whole thing, there are further points and charts of interest.

Thursday assorted links

by on June 18, 2015 at 1:10 pm in Uncategorized | Permalink

1. Penguin nationalism.  And does gravity collapse the cat?

2. A public assembly facilities manager considers Jurassic World.  I thought the film was OK enough to watch, with some nice scenes, but not great or memorable.

3. An Italian parable: what is the financial future of Siena?

4. Noah Feldman has a good account of TPP and foreign policy considerations.

5. Photos of China.

6. What do surviving kamikaze pilots say?  (And should we trust their accounts of why they survived?)

7. Potential problems with the California Uber ruling; Tim Lee is more optimistic.

In today’s illustration of Cowen’s second lawhere is a paper on what happens to wages when a worker’s subjectively reported race changes:

In Brazil, different employers often report different racial classifications for the same worker. We use this variation in employer-reported race to identify wage discrimination. Workers whose reported race changes from non-white to white receive a wage increase; those who change from white to non-white realize a symmetric wage decrease. As much as 40 percent of the raw racial wage gap is explained by the employer’s report of race, after controlling for all individual characteristics that do not change across jobs. The results are consistent with workers manipulating perceived race in an environment where racial classification is subjective, but discrimination persists.

Hat tip: Scott Cunningham.

He makes many good points, but this is my favorite:

From 1995 to 2004, productivity and real GDP rose at an unusually rapid rate.  The IT cheerleaders told us that this fast productivity growth was the long delayed fruits of the IT revolution.  Now we have very slow growth, and the digiterati tell us it’s also caused by the IT revolution, which is generating lots of stuff that doesn’t get picked up in the output data, because it’s free.  While I’m impressed by an explanation that’s as flexible as a circus contortionist, I’d prefer something that isn’t consistent with any possible state of the universe.  I’m no Popperian, but I like my theories to be at least a little bit falsifiable.

In other words, we know what a boom looks like, and this ain’t it.  I would, however, assent to and indeed stress two propositions:

1. Infovores are indeed much better off from the recent digital revolution.  And since most journalists and tech leaders are infovores (many academics too), they extrapolate too readily from themselves.

2. The “rate of productivity growth in consumption” is more mis-measured than is the rate of productivity growth in production.  Facebook really is fun for a lot of people, and unpriced on the consumption side; I sometimes say that I am a happiness optimist and a revenue pessimist.  But the production side of the economy matters in its own right, and indeed that is why they call it productivity.  Debts and bills must be paid, and jobs must be created at wages people will take, whether or not you’re having fun with Angry Birds or cursing at your (least) favorite blogger.  In fact we just had a recession where the jobless probably had more fun than ever before, due mostly to the internet.  It was still an event of significance.

So don’t aggregate consumption gains (e.g., learning to enjoy your Brussels sprouts more) with productivity gains, proudly parading a single number and claiming that everything is fine.  It is better, and more accurate, to say: “We’ve now learned to really love those Brussels sprouts, good for us, but we still may be in deep doo-doo.”

You can see a tightening labor market, and some of this you might interpret in terms of a growing skills gap:

filljob

The national time-to-fill average rose in February to the highest level in 15 years.

Sponsored by the career sites publisher Dice Holdings, the Dice-DFH Vacancy Duration Measure says it took an average of 26.8 working days to fill jobs in February. In January, according to the report, the average (as revised) was 25.7 working days.

“We are continuing to see signs of a tightening labor market,” said Michael Durney, president and CEO of Dice Holdings. “Unemployment rates are declining across several core industries, such as tech and healthcare, and the time-to-fill-open positions has hit an all-time high in the 15 years the data has been tracked.”

Jobs in the financial services sector took the longest to fill, averaging 43.1 days. Healthcare jobs averaged 42.6 days to fill. Both are historic highs for their respective industry sectors.

The full article, by John Zappe, is here, via David Wessel.

By the way, the skills mismatch hypothesis (not a substitute for AD hypotheses, let me stress) is stronger than you think.  Catherine Rampell writes:

Companies themselves are indeed reporting difficulty acquiring talent. Nearly half of small and medium-size businesses with recent vacancies say they could find few or no “qualified applicants,” according to the latest monthly survey of the National Federation of Independent Business. Over the past couple of years, firms have also become increasingly likely to say that “quality of labor” is the “single most important problem” facing their businesses.

I have generally been skeptical of the “skills mismatch” story, mostly because wage growth has been so pitiful during this recovery. If qualified applicants were really so scarce, businesses should be bidding up the salaries of the few hot commodities available. But Steven J. Davis , an economics professor at the University of Chicago’s Booth School of Business and one of the creators of the vacancy duration metric, says it’s unclear how a widespread skills mismatch, if one exists, would actually affect wages. Maybe a shortage of some highly desirable skill would lead employers to bid up the price of that qualification, he says, but that same scarcity might also lead firms to instead settle “for workers who have less of [or] lower-quality versions of the desired skills.” That could, in theory, cause hourly wages to fall overall. Robust research on the connection between skills mismatch and wages is in short supply.

This point from Davis is appreciated only rarely.

Over the past five seasons, LeBron’s played a total of 18,087 minutes, counting the regular season and the playoffs.

What that means: Compared to every other player, LeBron’s played at least 15% more minutes than anyone else in the league. He’s played nearly 2,500 more minutes than Kevin Durant, the runner-up.

Basically, pick any other NBA player. Since 2010, LeBron has played the equivalent of at least one extra season compared to that player — and likely, a lot more.

And over the past ten seasons, the minutes gap widens — LeBron has a 20% edge on Joe Johnson (who’s played the second-most minutes) and a 30% edge on Tim Duncan (who’s played the tenth-most).

And yet that is with very little in the way of injury, perhaps his most remarkable achievement.  That is all from Dan Diamond.

Wednesday assorted links

by on June 17, 2015 at 12:16 pm in Uncategorized | Permalink

1. Why are flamingos the most likely to escape a zoo successfully? (questions that are rarely asked)

2. Useful Chetty powerpoints.

3. Cheaper than dogs, department of why not?  But will it increase the number of ZMP canines?

4. Yes, aquifers are subject to the tragedy of the commons and yes it does matter.

5. Capsule hotels, hidden in Tokyo.

China fact (?) of the day

by on June 17, 2015 at 6:10 am in Current Affairs, Economics | Permalink

According to the latest official data, profits earned by Chinese manufacturers rose 2.6% from a year earlier in April, a turnaround from a drop of 0.4% in the previous month. Yet nearly all of that increase—97%—came from securities investment income, data from the National Bureau of Statistics show. Excluding the investment income, China’s industrial profits were up 0.09%.

Meanwhile, over the course of 2014, the value of stocks, bonds and other tradable securities owned by listed Chinese companies rose by 946 billion yuan ($152.4 billion), a 60% increase, according to an analysis by Mr. Zhu.

The trend is starting to worry Chinese regulators, who have been trying to make sure that banks and the stock markets ultimately channel money into parts of the economy that create jobs.

There is some real wisdom in this passage:

“Manufacturing is a very hard business these days,” said Mr. Dong, chairman of the company. “I want to make some money from the stock market and use the profits to restart my manufacturing business later, when the economy turns for the better.”

That is from the WSJ, covered by FTAlphaville.

TPP

by on June 17, 2015 at 1:57 am in Current Affairs, Economics, History, Law, Political Science | Permalink

“If this [TPP] collapses, Pacific Rim countries will be aghast,” said Shunpei Takemori, a professor at Keio University in Japan, the largest economy in the would-be trade zone after the United States. “China is pushing, and if the U.S. just stands aside, it would be a tragedy.”

And:

“If you don’t do this deal, what are your levers of power?” Singapore’s foreign minister, K. Shanmugam, said in Washington on Monday. “The choice is a very stark one: Do you want to be part of the region, or do you want to be out of the region?”

He argued that “trade is strategy” and that without economic leverage, the United States was left with only military clout in Asia “and that’s not the lever you want to use.”

“It’s absolutely vital to get it done,” he added, referring to the bill’s passage.

The full article is here.  I find the willingness of progressiveness to toss this bill into the wind, for the purposes of indulging the usual memes, to be one of the most depressing features of American political life in years.

You will find an alternative perspective from David Henderson here: “If the U.S. government is a “less reliable ally,” that could be a good thing.”  I don’t think they feel that way in Singapore, South Korea, or Taiwan.

By the way, the fourth edition of Doug Irwin’s trade book is coming out.

Bitcoin surged by as much as 7 percent on Tuesday and was on track for its longest winning streak in 18 months, as concerns that Greece could tumble out of the euro drove speculators and Greek depositors into the decentralised digital currency.

I am fine with this, I should add.  But no, I don’t think it represents the onset of a new monetary order.  In case you doubt what is going on here:

Scigala said over the past two months, with Greece locked in talks with its creditors, the company had seen a 124 percent pick-up in inflows from Greek IP addresses—numerical labels that identify computers and other internet-enabled devices.

For the pointer I thank Jerry Brito.  Here is my earlier post on Bitcoin, China, and capital controls.

Tuesday assorted links

by on June 16, 2015 at 2:51 pm in Uncategorized | Permalink

1. Johann Hari at Five Books on addiction.

2. How much ad blocking are we seeing?

3. Michael Pettis and Chinese punk rock.

4. Derek Thompson on effective giving.

5. David Brooks on TPP, and Ashok Rao on TPP.  And Ian Bremmer.

6. Five-year retrospective on Dodd-Frank.

7. Martin Wolf, against the techno-optimists.