Month: November 2008

New MR book club – Keynes’s *General Theory*

Greg Mankiw wrote:

If you were going to turn to only one economist to understand the
problems facing the economy, there is little doubt that the economist
would be John Maynard Keynes. Although Keynes died more than a
half-century ago, his diagnosis of recessions and depressions remains
the foundation of modern macroeconomics. His insights go a long way
toward explaining the challenges we now confront.

I will go through the book, chapter by chapter, with an eye toward a deeper understanding of what Keynes wrote and why it is, as Greg says, so important.  I’m not yet sure what kind of pace I can maintain but order your copy here, nowThe Kindle version is only $3.96.  We’ll do chapters 1 and 2 by next Monday, eight days from now.

The Cassandra Hunt

Kevin Drum comments, here is Brad DeLong, and Matt Yglesias, and Arnold Kling; they make good points all around.  There aren’t nearly as many Cassandras as you think, once you require more of a person than "having called" the housing bubble.  A simple question is what financial stocks a person had shorted as of, say, November 2007, or for that matter July 2007, and no "my wife wouldn’t let me" is not an adequate comeback.  And if you’re afraid of an unhedged position or margin call just buy some puts.

I plead fully guilty to not having been a Cassandra.  Oddly, I published an entire book in the late 1990s — Risk and Business Cycles(cheaper on Kindle)  — on how excess risk and correlated errors could cause an economy to explode; I’ll tell you more about that soon.   But if anything when it came to running commentary (on this blog, most of all) I was an anti-Cassandra.  First, I was too influenced by the relatively mild housing bubble collapse of the late 1980s.  Second, I did not understand how much fragility the extant degree of leverage implied.

Cassandra’s gift was in fact the source of continual pain and frustration.  That’s one reason why not so many people are Cassandras.

Fischer Black insisted in the mid-90s that the law of large numbers did
not apply to individual economic forecasts of sectoral shifts and thus such errors could not be expected to "cancel out" in the aggregate.  Not so many
people believed him and in retrospect the failure of people to take
Black seriously on this point is further evidence that the point is
indeed correct in many situations.

Addendum: The end of this Kevin Drum post nails it.

Law and Literature reading list, Spring 2009

The Five Books of Moses, edited and translated by Robert

Billy Budd and Other Tales, by Hermann Melville.

The Metamorphosis, In the Penal Colony, and Other Stories,
by Franz Kafka.

Smilla’s Sense of Snow, by Peter Hoeg.

The Art of Political Murder: Who Killed the Bishop? By Francisco

In the Belly of the Beast, by Jack Henry Abbott.

Borges and the Eternal Orangutans, by Fernando Verrissimo.

Glaspell’s Trifles, available on-line.

Great Short Works of Leo Tolstoy, by Leo Tolstoy.

Sherlock Holmes, The Complete Novels and Stories, Sir Arthur
Conan Doyle, volume 1.

Out: A Novel, by Natsuo Kirino.

I, Robot, by Isaac Asimov.

Moby Dick, by Hermann Melville, excerpts, chapters 89 and 90.

Year’s Best SF 9, edited by David G. Hartwell and Kathryn

Pale Fire, Vladimir Nabokov.

Blindness, by Jose Saramago.

We also will view a small number of movies — most of all Sia — and perhaps I will add a Henning Mankell novel as well.

The need for reliable information

I very much agree with this sentiment of Mark Thoma’s:

There has been much debate about whether the financial crisis is driven
by lack of liquidity or from fears about lack of adequate capital and
solvency, but I’m starting to think a third component is important as
well, the complete breakdown of traditional information flows, and a
loss of confidence in the models used to evaluate that information.
Markets need information to work properly, and the information
financial markets need is not available.

Here is more.  I do not wish to suggest that we abolish currency and T-Bills, but the deeper (and less stable) the private demand for these assets the harder it is to generate socially useful information from the trade in other assets.  Maybe today we’re in a world where the 1980 Grossman-Stiglitz paradox of information partly holds.  It’s not that the status quo price is already efficient, but rather no one gathering information feels they could benefit from swapping with the noise traders and so in turn not enough information is gathered.

Fiscal policy poll

What are the times in history — whether in the U.S. or elsewhere — when a large-scale application of expansionary fiscal policy has been effective in raising a country out of a recession or depression?

I’ve already discussed World War II and the United States, so whether or not you agree with me there is no need to mention that episode again.  I’m not (yet) looking for a debate rather I am conducting an opinion poll.  Over the next few weeks or months I hope to investigate some of the cases you mention and see what is the verdict of history.

No way would I go bungee jumping

INTJ – The Scientists

The long-range thinking and individualistic type. They are especially good at looking at almost anything and figuring out a way of improving it – often with a highly creative and imaginative touch. They are intellectually curious and daring, but might be physically hesitant to try new things.

The Scientists enjoy theoretical work that allows them to use their strong minds and bold creativity. Since they tend to be so abstract and theoretical in their communication they often have a problem communicating their visions to other people and need to learn patience and use concrete examples. Since they are extremely good at concentrating they often have no trouble working alone.

This show what parts of the brain that were dominant during writing.

The analyzer is here.

Questions that are rarely asked

Richard Green writes to me:

If the likes of Hitchcock and others could turn works that were mediocre in literature into great films, I wonder what mediocre films could have been great literature.

The point is not to come up with a list (though some of you will) but rather to ponder what we can learn about literature as a medium.  He continues:

…literature adapted from films is almost (and this is a hedge because my experience says invariably) hack work, rushed and held in the lowest regard...Is it because literature is the elder medium, and has a higher status which would prevent condescension to recognising a prior from another medium? Is it because creation is more personal to a individual writer than the inevitable collaboration of film, and so they are loath to allow others’ work in?

Movies need (at least) a plot and a script and that can be taken from a book, with results of varying quality of course.  But I do not have an equal understanding of which factor of production is scarce to writing a good novel.  Do professional writers benefit more from showing originality in creating a world and also creating a language?  There is plenty of fan fiction based on Star Trek and the like but few professional writers take this same tack.

A simple default hypothesis is that movies are more powerful and more real than books.  So a movie based on a book won’t necessarily be overwhelmed by its source but a book based on a movie will be.  Of course there are many books adapted from oral tales so maybe it is the addition of the pictures that is so overwhelming.  I know only a few books adapted from paintings, most notably Gert Hofmann’s excellent Der Blindensturz.

Sentences to ponder

No rational regulator concerned with substantive transparency would
approve of common stock, if it were a novel investment vehicle. It
guarantees no cash flows whatever, its "control rights" are so weak for
most purchasers that representations thereof should be viewed as
fraudulent. Empirically common stock behavior is very weakly coupled to
the performance and health of the firms that stocks fund. The only
instrument in wide use more substantatively opaque than common stock is
fiat money.

Here is more, interesting throughout.

How many Obamas are there?

According to databases, there might be fewer than 20 Obama families in
the United States, compared with more than 11,000 Clintons and 60,000

Many of these people are being treated like VIPs.  But they are not mostly from Kenya:

Nicanor, like most of the Obamas in this area, is a native of
Equatorial Guinea. The name is common there — much more so than in
Kenya, in fact, where the president-elect’s father was from — and
Guineans wonder whether they can make their own claim to a branch of
the president-elect’s family tree. There are also a few Obamas of
Japanese decent.

Here is a listing of all appearances of the word or name Obama, which includes lots from Japan, including a cable TV station.  Here is the only known Obama in the UK.

Now that Brian Cowen (read the section of that link on "public image") is Prime Minister of Ireland…

Assorted links

1. Prices, Poverty, and Inequality: Why Americans are Better Off Than You Think, by Christian Broda and David E. Weinstein.  The full text is free on-line at the link.

2. The economics of Scientology.

3. 5, 322, and $4250 are the relevant numbers in this story of a journal run amok.  Shocking (or is it?).

4. NYT 100 Notable Books.  It’s an OK enough list and you can think of these as the mainstream picks.

5. Questions about bagels.

Facts about the Chinese slowdown

Why then is China slowing so sharply? Simple, real estate investment
has hit a wall. After growing at 20% y/y for a long time, real estate
investment stalled – with a y/y growth rate of around 0% (Figure 5).
That means that China is in turn producing more steel and cement than
it needs, and producers of steel and cement are cutting back. That in
turns hurts iron ore exporters…

This though is very much a result of China’s own policy choices. Rather
than allowing the real exchange rate to appreciate back when China was
truly booming (05-late 07/ early 08), China’s policy makers opted to
rely on administrative curbs on credit growth. That left China more
exposed to global slump in demand – as it kept exports up by limiting
real appreciation even as it credit curbs limited the amount of froth
in the real estate market back when China was booming and real interest
rates were negative. China invested a lot in real estate, but it is no
Dubai. But China’s policy makers still look to have slammed the brakes
on a bit too hard. Rather than slowing gradually, real estate
investment fell off a cliff

That’s a Brad Setser summary of work from the World Bank.  Here is much more, very interesting throughout, although I doubt if there was a much smoother path than what was chosen.  It is also argued that the low price of oil means China will have no problem keeping up its purchases of U.S. Treasury securities.

Addendum: Yes comments are working again…