Month: February 2012

*The Start-Up of You*

That is the new book by Ben Casnocha and Reid Hoffman and the subtitle is Adapt to the Future, Invest in Yourself, and Transform Your Career.  if you are starting a career, it is an excellent book for thinking through the practical issues you will face in branding yourself in what is becoming a more volatile and very different labor market.  The book’s home page is here.


Ken writes:

I was scouring your blog for Fyodor Dostoevsky and was surprised to see no mentions. I was just wondering your thoughts on him. Currently reading the Brothers Karamazov and it’s fantastic.

Brothers Karamazov spent seven or so years as my favorite book, starting in high school.  I’m not suggesting it is juvenile, only that I find it hard to go back and enjoy things at lower levels than I did before (I also don’t like to eat in still-good but declining restaurants).  I no longer find Notes from Underground interesting, as I regard its questions as a dead end.  I’d sooner reread Pascal.  I never got through The Idiot or Demons in the first place.  About two years ago I read House of the Dead and liked it, though it felt like a respite from the more typical conception of Dostoyevsky.

How much can you like Dostoyevsky anyway?  My sense is that he is probably underrated as a pure writer (much of it comes across as garbage in English translation, but perhaps is quite biting or comic or interestingly manic), and overrated as a source of the “novel of ideas.”

If you enter “Dostoyevsky” into the search function of Twitter, you don’t come up with much interesting these days.

Whence comes this sudden wave of economic determinism?

All of a sudden it is pulled out of the closest as a weapon against Charles Murray, such as by Paul Krugman (and here and here), Rortybomb, David Frum, and others.  Bryan Caplan brings some sanity to the debate:

I’m baffled by people who blame declining marriage rates on poverty.  Why?  Because being single is more expensive than being married.  Picture two singles living separately.  If they marry, they sharply cut their total housing costs.  They cut the total cost of furniture, appliances, fuel, and health insurance.  Even groceries get cheaper: think CostCo.

These savings are especially blatant when your income is low.  Even the official poverty line acknowledges them.  The Poverty Threshold for a household with one adult is $11,139; the Poverty Threshold for a household with two adults is $14,218.  When two individuals at the poverty line maintain separate households, they’re effectively spending 2*$11,139-$14,218=$8,060 a year to stay single.

But wait, there’s more.  Marriage doesn’t just cut expenses.  It raises couples’ income.  In the NLSY, married men earn about 40% more than comparable single men; married women earn about 10% less than comparable single women.  From a couples’ point of view, that’s a big net bonus.  And much of this bonus seems to be causal.

More plausibly it is the rise in female income (among other factors, including the rise of birth control, read more here) which is behind the decline in marriage, but that doesn’t fit with traditional mood affiliation, which finds the rise in female income to be good (which it is), and the decline in marriage to be — neither good nor bad per se but not exactly worth celebrating.  If you can blame capitalism and wage stagnation for the decline of the family among lower earners, so much the better for ideology but as a sociological proposition that is a very weak hypothesis (do you see convincing links to real sociological evidence, showing this to be the dominant factor? No) and as Caplan shows it doesn’t fit with the economics either.

Remind me again, how is wage stagnation supposed to explain the pronounced decline in religiosity, among lower earners, as shown by Murray?  It’s well-known that a secular outlook is a normal good, and that on average poorer countries are more religious than wealthier countries.

I’m struck by how many people are offering negative comment on the new Murray book who have not read it, or who do not appear to have read it.  I found it to be a much less controversial book than the commentary makes it seem, and actually I had stopped thinking about it, except for all the negative reviews I see it getting.  It is unpopular because it disrupts current moral narratives about economic and social decline, as much on the right as on the left I might add, not because it is relying on dubious facts.  It is simply redescribing inequality through a somewhat different lens.  There’s much less at stake here than meets the eye.

Maybe I should not even be responding, but then again I am a determinist and does not Karl Smith have a good forecasting record to date?

*An Economist gets Lunch*

I am pleased that Publisher’s Weekly has offered a starred review to my forthcoming book:

Enlightened consumerism, not ideology, is the surest path to tasty and responsible dining, argues this yummy gastronomic treatise. Economist and restaurant critic Cowen (The Great Stagnation) takes readers along as he eats, shops, and cooks in a diversity of spicy settings, including a Nicaraguan tamale stand, the greens aisle at the Great Wall supermarket chain, backwoods barbeque pits, and his own kitchen, where he wrestles with Mexican cuisine. He focuses on how the interplay between creative suppliers and demanding customers produces good, cheap food, an approach that yields offbeat insights into, for example, why the menu item that sounds the least appetizing usually tastes great and why you should never eat in a place filled with beautiful people having a great time (that restaurant’s specialty, he reasons, is the scene, not the food). Cowen also offers a telling contrarian critique of high-minded food orthodoxies that extols agribusiness, debunks the environmental benefits of locavorism, and toasts genetically modified organisms. Cowen writes like your favorite wised-up food maven, folding encyclopedic knowledge and piquant food porn—“the pork was a little chewy but flavorful, and the achiote sauce gave it a tanginess”—into a breezy, conversational style; the result is mouth-watering food for thought.

You can pre-order the book on Amazon here.  For Barnes & Noble here.  For here.

The Three Laws of Future Employment

Writing at New Geography Daniel Jelski offers a critique of (some of) Launching the Innovation Renaissance. We are in basic agreement about the laws of future employment:

Law #1: People will get jobs doing things that computers can’t do. Law #2: A global market place will result in lower pay and fewer opportunities for many careers. (But also in cheaper and better products and a higher standard of living for American consumers.) Law #3: Professional people will more likely be freelancers and less likely to have a steady job.

[But]…Laws #1 & 2 predict that there will likely be fewer STEM jobs in the future – they are both easily computerized and tradable. People will always be employed in STEM disciplines, many of them highly paid, but they’ll be paid for smarts rather than education. The disciplines will be much more competitive, with older and less talented workers left on the sidelines. Tom Friedman and Alex Tabarrok, reflecting conventional wisdom,  are mistaken in maintaining that increasing STEM education is a key to future economic competitiveness.

Jelski instead recommends English lit and psychology, at least if you are young and hot!  The logic–computers don’t write well and people don’t want to have sex with or be counseled by computers (yet!),–seems strong but wage rates and unemployment levels don’t support the argument. Jelski is correct about demand but forgets to take into account supply. Thus, the way to go is to be a hot engineer who can write well and get along with other people. (Jelski also forgets that my argument for STEM was in large part about the spillover effects).

I am in strong agreement with Jelski, however, that education is only the first step to success. Education is a tool; to truly succeed one must have skills developed with grit and applied with passion.

China facts of the day

Office rents in Beijing have soared over the past two years, making it more expensive to lease prime work space in China’s capital than in New York, according to an industry survey.

A boom in demand and limited supply of high-quality space catapulted Beijing to fifth place in a list of the world’s priciest office locations that was compiled by Cushman & Wakefield, a commercial property services firm.

Hong Kong retained the top spot, followed by London, Tokyo and Moscow. New York was sixth, just behind Beijing.

Prime office rents in Beijing’s central business district rose 75 per cent last year, the fastest globally, and up from a 48 per cent increase in 2010, according to the survey.

Here is a bit more.

Conspiracy Über Alles

From Michael J. Wood, Karen M. Douglas, and Robbie M. Sutton:

Conspiracy theories can form a monological belief system: A self-sustaining worldview comprised of a network of mutually supportive beliefs. The present research shows that even mutually incompatible conspiracy theories are positively correlated in endorsement. In Study 1 (n = 137), the more participants believed that Princess Diana faked her own death, the more they believed that she was murdered. In Study 2 (n = 102), the more participants believed that Osama Bin Laden was already dead when U.S. special forces raided his compound in Pakistan, the more they believed he is still alive. Hierarchical regression models showed that mutually incompatible conspiracy theories are positively associated because both are associated with the view that the authorities are engaged in a cover-up (Study 2). The monological nature of conspiracy belief appears to be driven not by conspiracy theories directly supporting one another but by broader beliefs supporting conspiracy theories in general.

Here is the gated link, here is an ungated version, and hat tip goes to Kevin Lewis.

Book splat

Timothy Taylor, The Instant Economist: Everything You Need to Know About How the Economy Works is too elementary for most MR readers but it is well executed and would make a good gift for anyone needing an introduction to economic reasoning.

Larry Kotlikoff and Scott Burns have their new The Clash of Generations: Saving Ourselves, Our Kids, and Our Economy, due out in March.  I believe they are still fiscal pessimists.

There is Ruchir Sharma, Breakout Nations: In Pursuit of the Next Economic Miracles, due out in April.

I reviewed Ruth Grant’s new Strings Attached: When do Incentives Corrupt? here, for Science, university readers can get through the gate.

Alessandra Casella, Storable Votes: Protecting the Minority Voice, calls for a system where you can abstain from voting on one measure and receive an extra vote on something else.

Christopher Balding, Sovereign Wealth Funds: The New Intersection of Wealth and Politics is a useful overview.

Jo Guldi, Roads to Power: Britain Invents the Infrastructure State is a good and also conceptual history of 19th century road building.

I loved Arthur Schnitzler’s Casanova’s Homecoming, free on Kindle, which I never had read before.  Alice James: A Biography, by Jean Strouse, is a very good look at her life (she is the sister) and the life of the James family.

There is The Southern Tiger: Chile’s Fight for a Democratic and Prosperous Future, by Ricardo Lagos, Elizabeth Dickinson, and Blake Hounshell, next up on my Kindle.

I recommend Michael Grabell, Money Well-Spent?: The Truth Behind the Trillion-Dollar Stimulus, The Biggest Economic Recovery Plan in History.  It is a very good journalistic account of how the money was spent, and less scandal-mongering than the title might indicate.  I found it to be quite an objective account.  There should be more books like this, looking at the nuts and bolts of economic legislation.

Hong Kong v. Shenzhen on Immigration

QQ截图未命名3A full page anti-immigration ad taken out in a Hong Kong newspaper is making waves. The ad (shown at right; note the locust) reads:

Do you want Hong Kong to pay 1 million HKD per 18 minute raising illegitimate child from mainland?

Hong Kong people have had enough of it!

We understand that you suffer from contaminated milk powder, so we tolerate your raid upon our milk powder; we understand that you don’t have freedom, so we receive you over here through “free pass”; we understand that your education is poor, so we share our educational resource with you; we understand that you don’t read traditional Chinese, so we use “cripple” Chinese character (simplified Chinese) in the following: “Please respect our local culture when you are here, without Hong Kong you are all doomed.”

Strongly demand the government to amend the 24th clause of Basic Laws!

Stop the massive invasion of double negative pregnant women from mainland. (double negative = none of the woman’s parents are from HK)

The ad then went viral with versions of the ad created for  Beijing, Shanghai and Guangzhou [text here was corrected, AT] but the Shenzhen version took a different approach. The text here reads:


You are one of us if you come to Shenzhen.

Welcome to Shenzhen!

Because we are all away from home, so welcome here; because this is a big circle Grandpa Deng drew for all of us (metaphor for making Shenzhen special economic region), so welcome here; because you are part of the momentum that keeps Shenzhen going, so welcome here; because of you are the reason behind our 30 years of prosperity, so welcome here; because we want the whole world to know this, so we use English the say the next: “welcome to hometown Shenzhen”.

Warmly welcome every hard worker to Shenzhen!

We wish all Shenzhen people a happy new year and may all your wishes come true!

Hat tip to Bradley M. Gardner.

Why Old Keynesianism is looking worse these days, and other thoughts

I am happy to report that I heard another Paul Krugman talk a few nights ago.  Krugman had just flown in from Moscow, switching in Houston to a flight to Austin, with little time to spare.  Presumably he was very tired, he had a bad cold, he had to speak in a loud barbecue joint and bar, and yet he was entirely lucid and he charmed and instructed the crowd.  He even had praise for MarginalRevolution.  It was better and better received than if he had given a more traditional lecture.

The same Krugman has a recent blog post, or two, in which he is unhappy with me.  I will put some thoughts on that under the fold…

Krugman attacks me for being an anti-Keynesian when in fact I very much prefer New Keynesianism over Old, so the entirety of his critique is boxing at shadows.  As an aside, my first published article was in the Journal of Post Keynesian Economics, and as long ago as 1989 I wrote an essay arguing that Keynesian economics explained the Great Depression better than did alternative views; some of my libertarian and Austrian acquaintances still hold that piece against me.  Some MR readers also will recall the 12-part symposium I did on Keynes’s General Theory, full of praise for the book, though of course with some criticisms too.  I don’t expect Krugman to be an expert in the history of thought of me, but a) he has linked to previous posts of mine making clear my affinity for sticky price reasoning and other new Keynesian ideas, b) it is a rather simple proof that he has rather drastically misread me, as has DeLong, and c) if Krugman doesn’t know my views perhaps he should not attack them in such strident language.  By the way, to the extent I like Old Keynesianism, it is for the Shackle-Lachmann-Minsky strand, not IS-LM and the liquidity trap.

Moving on to substance, let’s start with a few reasons why I think the course of the recovery discriminates against Old Keynesianism, though not against new Keynesianism (definitions and contrast here).

1. New Keynesianism has a more optimistic attitude toward mean reversion than does Old Keynesianism.  Things are looking a bit better than expected half a year ago, so New Keynesianism gains in status over the Old.  Q.E.D.  That’s actually enough to establish the entire point.

2. Brad DeLong suggested not long ago that the short-run model, rather than the long-run model, will apply for a minimum of five years, and possibly up to fifteen years.  That claim is looking weaker these days and I am happy to admit that I am revising my own previous views on speed of adjustment.  It’s one thing to predict we won’t get to four percent unemployment for a long time, but I am now much more skeptical that the short-run model will apply for so many years.  (Since the labor force is not a homogeneous aggregate, the long-run model still can be more relevant than the short-run model even when there is residual unemployment.)  That is the view I am arguing against and Brad is not made of straw.

3. Krugman’s own writings show he is less worried about the particular perverse consequences of one version of the liquidity trap argument than say a year or six months ago.  Remember all the talk of the upward-sloping aggregate demand curve?  That would imply more output and the expectation of further output gains can make the liquidity trap worse.  Yet how does Krugman respond to the good job market report?  He claims, correctly, that it is good news.  Full stop.  There is no response like “it’s great those people have jobs but I’m worried that the extra output will worsen the liquidity trap.”  Common sense rules, as it should, though now it’s time to admit we have moved onto a different and better model.

3. Frankly, it is a bit of an embarrassment for many commentators that the (admittedly weak) recovery is coming right after the end of the fiscal stimulus.  Of course this does not refute the standard account of fiscal policy, namely that it can work but is hard to pull off politically in a manner which contributes to sustainable growth.  The correct answer for the timing of recovery, relative to the end of stimulus, is “confounding factors,” but that is exactly the point.  The confounding factors are more important than we had thought, and the fiscal stimulus not quite as important as we had been led to believe.   That is another point against the Old Keynesian view.

4. The Old Keynesian focus on the paradox of savings may have been relevant during the most dire points of the crisis, but it does not seem to be panning out in the recent data.

5. Liquidity trap models of unemployment stand in tension with Mortensen-Pissarides search models, as Krugman himself has noted in the past.  The notion that employer (and worker) expected profit influences search behavior and thus employment, seems to be showing up in the data.  That’s a real business cycle mechanism.

6. Corporate profits are strong.  Quite possibly the prevalence of labor-saving innovations helps explain why labor market recovery has been slower.  That too is a real business cycle mechanism.  The persistence of long-term unemployment, even in light of an improving labor market, suggests those particular workers face structural unemployment.  That too is a real business cycle mechanism.

7. A lot of people get upset when one praises “real business cycle” models, perhaps having in mind some overly simplified one-person contraption from the early 1980s.  The reality is that most economic phenomena and mechanisms fall under this heading, and that the objectionable simple models have been left behind a long time ago in favor of synthetic treatments.  I’m the one in the mainstream here (which doesn’t mean I am right), but it does make it odder to be pilloried and insulted for holding those views, as if it were some inexplicable tomfoolery not worthy of professional economists.

8. The old Keynesian view really does have trouble explaining turning points, unless there is a major fiscal or monetary policy action to account for the change.  This was well-known as long ago as the 1930s.  Brad DeLong cites a passage from Keynes about the depreciation of capital (see my previous coverage here, I am very familiar with this argument), but of course Keynes thought that mechanism was too weak and unreliable and thus he favored a mix of planning and nationalized investment.  In any case that mechanism explains only one chunk of the current recovery and furthermore I call a rising MPK a real factor too.

9. Krugman sometimes writes as if new and old Keynesian approaches are simply more and less rigorous versions of the same thing, but they clash on a number of important issues, a few of which I’ve mentioned above.  You don’t have to agree with Stephen Williamson on everything, or approve of his tone, to notice that many of his blog posts illuminate significant differences between New and Old Keynesianism.  Read through his archives.  There’s a lot of very smart stuff in there, even though it has become unstylish to respond to him very much.  He knows a lot about macroeconomics, usually more than the people he is criticizing, even if I often disagree with him on methodology.

10. Finally, it’s worth going through Krugman’s citations of his own successful predictions:

We said that as long as the economy remained deeply depressed, even a huge rise in the monetary base would not be inflationary, and that even huge budget deficits would not send interest rates soaring. And we said that fiscal austerity would be contractionary, not expansionary.

Funny enough, I also got those first two predictions right too, and on the third I have argued we haven’t seen real austerity yet.  I also was never very proud of myself for getting those predictions right, because I thought it did not show any particular acumen on my part, nor did I think it elevated me to an especially prophetic stature.  I actually prefer to think more about all the predictions I got wrong.  Here is Scott Sumner on the predictions he got right, an excellent record.  Perhaps Krugman’s successful predictions have come from a broader framework and not from Old Keynesianism per se?

In sum, one constructive response to the new data, and my post, would have been: “The Old Keynesian fortress actually is looking weaker these days.”

Another constructive response would have been to try to patch up the growing holes in the Old Keynesian approach, as applied to 2011-12, and try to salvage it vis-a-vis New Keynesianism and/or market monetarism.  No need to waste so much time on views which aren’t even in the running.

We didn’t get either of those.  This unfortunate outcome relates back to my earlier, broader point about focusing on the stronger arguments of the other point of view.  If one spends too much time knocking down and polemicizing against weak arguments, sooner or later all opposing arguments start looking weak.

Addendum: Mark Thoma adds comment.  And Ezra Klein comments.   Here is Krugman’s response.  There is no Orwellian move on my part, I’ve long been fine with new Keynesian ideas and there is a long paper trail to that effect, stretching back many years; to cite “real business cycle theory” in 2012 is in fact to refer to a bunch of them as part of the theory.  When it comes to RBC, Krugman is still living in 1983, a point which Stephen Williamson has made a few times as well.

Markets in everything China bid of the day

Wealthy Chinese have been snapping up contemporary art, top wines and some the world’s most expensive cars. Now they’re adding pigeons to their must-have list.

A Chinese shipping magnate last weekend spent 250,400 euros ($328,000) for a Dutch pigeon, a new world record according to Pipa, the firm that ran the online auction.

These aren’t your ordinary birds that eat scraps in the park but ones bred for the arcane sport of pigeon racing, which has a cult following in England, Belgium, Netherlands, Germany and, increasingly, China.

The buyer, Hu Zhen Yu, runs Zhenyu Holding Group in Wenzhou. He told Pipa that he wants to “focus more and more on the pigeon sport.” Zhenyu last year sponsored a pigeon race in Wenzhou that awarded 7 million yuan ($1.1 million) in prize money.

But all is not well with the pecuniary externalities:

Pigeon racing has traditionally been a rural pastime, and the entrance of wealthy Chinese hobbyists is ruffling some feathers. The Telegraph quoted veterans of the sport complaining about the high bids and loss of the birds to another continent.

The link is here and for the pointer I thank the excellent Daniel Lippman.  Here is also another MIE in China link.  Here are China’s hard landing odds, updated.

Tony Judt’s new book *Thinking the Twentieth Century*

It is a wide-ranging dialogue with Timothy Snyder, you can buy it here.  I will gladly recommend this book, but I have mixed feelings about it.  It is Judt’s “deathbed conversations” with Snyder, when he was paralyzed.

Is it fascinating?  Yes.  Did I read it straight through without pausing?  Yes.  Did I learn a lot?  Yes.

Yet it doesn’t show Judt in such an overwhelmingly favorable light.  He is cranky, unfair to his intellectual opponents, and he repeatedly misrepresents thinkers such as Hayek on some fairly simple points.  He conducts unsubstantiated attacks on various New York Times columnists, as if they had once beaten him in a debate and this was his revenge.  It shows his lifelong and mostly unhealthy obsession with what Daniel Klein has called “The People’s Romance.”  Unlike in some of his previous writings, his proposals for a one-state solution to the Israel-Palestine problem come off as an irresponsible and somewhat flip symbolic gesture, easy enough to make because he doesn’t have to live with the outcome.  As a reader and reviewer it is hard to not wonder whether/how Judt was medicated during these conversations, and how well he had thought through his lack of editing options before publication.  Or is this the real Judt?  Are we all really like this?  Pondering that question is as interesting as the dialogue itself.

The Austrians will be happy when Judt writes: “The three quarters of century that followed Austria’s collapse in the 1930s can be seen as a duel between Keynes and Hayek.”  Yet he has the odd view that free market ideas were “imported to the U.S. in the suitcases of a handful of disabused Viennese intellectuals.”  Others may underrate the importance of central/eastern Europe but in these dialogues he overrates it.

One does not have to agree with Hayek’s Road to Serfdom to find this an unfair characterization:

Hayek is quite explicit on this count: if you begin with welfare policies of any sort — directing individuals, taxing for social ends, engineering the outcomes of market relationships — you will end up with Hitler.

My favorite part of the book comes at Kindle location 1294, here is part of that discussion:

But even when Blunt was outed as a Soviet spy, in 1979, his standing in high society, and in the distinctive codes of that society in England, still protected him…Thus Blunt — a spy, a communist, a dissembler, a liar and a man who may have actively contributed to the exposure and death of British agents — was nonetheless deemed by some of the his colleagues to be guilty of no crime serious enough to justify depriving him of the fellowship of the British Academy.

If you are seeking to “normalize” this review, I consider Judt’s Past Imperfect to be one of the best books of the last few decades, his Postwar to be one of my favorite books ever, and his late essays to be some of the best writing, in any genre, in a long time.  (Though I didn’t like Ill Fares the Land.)  I can recommend this too, as something worth consuming and pondering and spending money on, but I still have a slightly queasy feeling in my stomach.