Month: October 2011
1. Markets in everything, the article is longer than I would have thought.
2. NFL moral hazard.
3. “You shouldn’t expect much from us,” new article on Sargent and Sims.
This is from 2009, but I haven’t seen it receive a useful discussion:
These facts demonstrate that a relatively small number of establishments (41,000 to 50,000) changing their employment levels by 20 or more jobs has been sufficient to create or lose approximately as many jobs as the more than 1.5 million establishments that changed their employment levels by just a few jobs.
See charts three and four for a vivid illustration of the effect, or here is another presentation of the idea, reflecting the diminishing rate of creative destruction in the American economy:
The levels of gross job gains and gross job losses prior to the 2001 recession are noticeably higher than the levels following the 2001 recession.
For the pointer I thank David Berger.
Perhaps you haven’t read Mrs. Molesworth’s “Uncanny Tales” or C. Schweigger’s “Schweigger on Squint.” Perhaps you missed “How to Be Happy Though Married” or the Farmers’ Bulletin devoted to “House Rats and Mice.” No worries. They are available in 24 digital formats, including versions to suit just about any e-book reader you own. These titles, and millions more, are all out of copyright and part of the accelerating effort to digitize the public domain contents of the world’s libraries.
Every e-book reader seems to come preloaded with a few canonical titles — “Pride and Prejudice” or “Alice in Wonderland,” for instance. But there has never been a better time to be a slightly faded writer just beyond the cusp of copyright, like Edgar Wallace or Hilaire Belloc. Their voluminous works — not easily found in your local library — are now copiously available to the digitally curious.
…How “My Unknown Chum” by Charles Bullard Fairbanks was selected for digitizing is unclear.
Here is a bit more.
WP: The Obama administration cut a major planned benefit from the 2010 health-care law on Friday, announcing that a program to offer Americans insurance for long-term care was simply unworkable.
Last week, I wrote about the CLASS act. As you may recall, this long-term health insurance program was scored as a big 10-year deficit reducer because it combined early taxes with late expenditures. It was obvious that the late expenditures would quick overwhelm the early taxes but the CLASS act added some $80 billion to projected health-care savings which helped to pass the bill. Now the bill is passed, however, reality is setting in and the program has been scrapped. House Republicans are upset:
“Make no mistake,” Chairman Fred Upton (R-Mich.) said in announcing the hearing, “the CLASS program was tucked into the health care law to provide $86 billion in false savings, and this budget gimmick is a prime example of why Americans are losing faith in Washington. We plan to hold this hearing to get answers about why this sham was carried on for as long as it was, and what cancellation of the program means for the law’s growing price tag.”
That is the new Michel Houellebecq book, available from UK Amazon, out January in the US. It is worth the shipping costs. Yet, while waiting for it to arrive, I saw a copy on sale in Rome, above a PPP price. In my desire to read it sooner rather than later I bought it, that was worth it too. It’s worth both prices put together, and then some, at pretty much any dollar/euro exchange rate or any dollar/pound sterling exchange rate, you can imagine.
I was relieved to see that Houllebecq understands the connection between his ideas and those of Charles Fourier (an underrated thinker).
The first and most obvious objection is, why not give the books to the poor? They need stuff to read. Or to prisoners? Or to sick kids? Or to struggling independent booksellers? It doesn’t cost a thing to give something away, right?
The problem is the situation for a library is more complicated than when you just take a bunch of old clothes and unwanted porn down to the Salvation Army. A library book is stamped and bugged and cataloged so that the library knows that it belongs to them. When a book is given away or sold, the library has to go through and remove all that crap, so whoever winds up with it can prove they didn’t just steal it off the shelf. I’m not kidding about that, either — some people who wind up with such books helpfully return them to the library.
And we’re talking about a lot of books here — these libraries are having to cut down their stock in a hurry. Imagine you’re the manager of a library, and some accountant tells you that you need to get rid of 100,000 books, and do it in a week. You really have two options. One, you can get a bunch of academics to scour your collection and painstakingly rate each book according to its value and importance. Then you can hire a bunch of people to take down the 100,000 least important books and painstakingly stamp and debug them, one by one. Your second option is to get the computer to spit out a list of the 100,000 least borrowed books, and hire a few people to walk down the aisles with their arms out, throwing those books in a shredding machine.
That second option is much quicker and much cheaper. Sometimes you can find a paper recycling centre that will pay you for the pulp, so destroying the books leads to a net profit. Nobody likes it, but for a librarian it’s like your best friend just got bitten by a zombie and you’re the only one with a gun.
Also, remember that the stuff worth saving is buried among a lot of other books that are basically garbage. Though everyone realizes that extremely valuable books are going to inevitably get caught in the same net, there’s not much that can be done about it. Nobody is going to order a first-edition Moby-Dick from a library warehouse if the 2011 reprint is sitting right there on the shelf. A computer list that ranks books by popularity can’t tell the difference.
Another downside to this option is that you have to ensure total destruction. You can’t just throw the books in a Dumpster for some asshole to come along and grab later. If you go the Dumpster option, you have to tear out chapters so that people won’t want them, or just fill the Dumpster with detergent. You don’t want people to get in the habit of treating your Dumpster like the clearance rack — it’s dangerous and messy for everyone involved.
I am afraid that the leaders are contemplating some inappropriate steps. They are talking about recapitalising the banking system, rather than guaranteeing it.
A fair enough point, but where will the money come from to do that?
In exchange for a guarantee, the major banks would have to agree to abide by the instructions of the ECB. This is a radical step but necessary under the circumstances. Acting at the behest of the member states, the central bank has sufficient powers of persuasion. It could close its discount window to, and the governments could seize, the banks that refuse to co-operate.
The ECB would then instruct the banks to maintain their credit lines and loan portfolios while strictly monitoring the risks they take for their own account. This would remove one of the main driving forces of the current market turmoil.
The other driving force – the lack of financing for sovereign debt – could be dealt with by the ECB lowering its discount rate and encouraging countries in difficulties to issue treasury bills and prompting the banks to subscribe.
Um…if it all is a liquidity crisis, this might work, public choice problems aside. Otherwise it is calling for possibly insolvent banks to prop up not only the real economy but the governments too, which in turn will guarantee the banks, which by the way now have to keep on making bad loans.
Here is Jason Brennan:
How other people vote is my business. After all, they make it my business. Electoral decisions are imposed upon all through force, that is, through violence and threats of violence. When it comes to politics, we are not free to walk away from bad decisions. Voters impose externalities upon others.
We would never say to everyone, “Who cares if you know anything about surgery or medicine? The important thing is that you make your cut.” Yet for some reason, we do say, “It doesn’t matter if you know much about politics. The important thing is to vote.” In both cases, incompetent decision-making can hurt innocent people.
Commonsense morality tells us to treat the two cases differently. Commonsense morality is wrong.
…In The Ethics of Voting, I argue that…voters should vote on the basis of sound evidence. They must put in heavy work to make sure their reasons for voting as they do are morally and epistemically justified. In general, they must vote for the common good rather than for narrow self-interest. Citizens who are unwilling or unable to put in the hard work of becoming good voters should not vote at all. They should stay home on election day rather than pollute the polls with their bad votes.
Yet there’s obviously a meaningful secular story as well, but it’s more complicated and, indeed, remains something of a mystery, as Haltiwanger can only posit a few educated guesses.
Among them are the increasing share of US employment moving to businesses six years or older; the shift to large-scale retail chains; the aging of the US labour force (and therefore less willingness to experiment); declining job creation rates for startups; economic uncertainty; policy uncertainty.
I’ll skip context and links and cut right to the chase. Reinhart-Rogoff and nominal gdp perspectives and TGS views also have been predicting a slow recovery, so while IS-LM has done OK here it wins no special prizes.
What about the “no crowding out” prediction? Since at least the early to mid 1980s, it has been well-known in macroeconomics that U.S. budget deficits do not forecast real interest rates very well and that includes under periods of full or near-full employment. Here is a brief survey by Alan Reynolds on the topic (you can follow up on his references), and he is usually considered a villain by the Keynesians and so he is hardly a Keynesian himself.
There may be a few reasons for the general lack of a connection between deficits and real interest rates in the United States:
1. The supply of capital to the United States is fairly elastic, either domestically or internationally.
2. We don’t have good identifying restrictions on the empirics in the first place. For one thing, controlling for monetary policy is tricky.
3. We haven’t yet seen budget deficits big enough to matter.
4. We are not measuring budget deficits correctly because what matters is the consolidated fiscal stance of the U.S. government, a’la Robert Eisner.
5. Ideas related to Barro’s Ricardian Equivalence hypothesis.
Anyone — Keynesian or otherwise — paying attention to the last thirty years of empirical macro never expected much crowding out of financial capital in the first place. It simply has not been in the cards.
To put it more bluntly, the “no crowding out” result is not much of a predictive victory for Keynesian economics, IS-LM, the liquidity trap, and so on, even though I have read it claimed as such many times. It is a strike against some predictors who were wrong in the first place, especially in the right-wing popular press circa 2009-2010, plus some Republicans who jumped ship on the issue, perhaps because they wanted to attack Obama.
What’s a unique prediction we might look at? It is a common Old Keynesian claim these days, at least from Krugman, that the AD curve is upward-sloping because of a liquidity trap. That would imply that harsh and binding minimum wage hikes, and other wage-propping mechanisms, should prove expansionary. That claim, at least for the Great Depression, has been knocked down fairly conclusively by Scott Sumner. If there is no comparable test on today’s data, it is because we have grown that much wiser.
To halt the fall in house prices, the government should reduce mortgage principal when it exceeds 110 percent of the home value. About 11 million of the nearly 15 million homes that are “underwater” are in this category. If everyone eligible participated, the one-time cost would be under $350 billion. Here’s how such a policy might work:
If the bank or other mortgage holder agrees, the value of the mortgage would be reduced to 110 percent of the home value, with the government absorbing half of the cost of the reduction and the bank absorbing the other half. For the millions of underwater mortgages that are held by Fannie Mae and Freddie Mac, the government would just be paying itself. And in exchange for this reduction in principal, the borrower would have to accept that the new mortgage had full recourse — in other words, the government could go after the borrower’s other assets if he defaulted on the home. This would all be voluntary.
Here is more.