Month: March 2012
*The Social Conquest of Earth*
By Edward O. Wilson, Amazon link here. I am a big Wilson fan, but I didn’t find anything new in it, although for some readers it might be a good introduction to a variety of ideas such as eusociality.
I was surprised to see the main blurb as “A monumental exploration of the biological origins of the human condition!” — James D. Watson.
More on the time-dependence of fiscal policy
Chris Reicher has a new paper (pdf) and the abstract is here:
This paper documents the systematic response of postwar U.S. fiscal policy to fiscal imbalances and the business cycle using a multivariate Fiscal Taylor Rule. Adjustments to taxes and purchases both account for a large portion of the fiscal response to debt, while authorities seem reluctant to adjust transfers. As expected, taxes are highly procyclical; purchases are acyclical; and transfers are countercyclical. Neither pattern has changed much over time, except that adjustment happens more slowly after 1981 than before 1980. The role of adjustments to purchases in stabilizing the debt indicates that the recent discussion about spending reversals is highly relevant.
The gated, published version is here. Chris writes me in an email:
Germany uses a similar mix of spending restraint vs. tax increases as the United States in order to consolidate its fiscal position over time. My 2012 article basically corroborates Bohn’s results using different techniques for the postwar period. I have a set of unpublished estimates which indicates the same thing for Germany and a number of other countries–adjustments to real spending and taxes both account for large portions of fiscal authorities’ endogenous response to debt.
Chris points me to a further paper on the topic, forthcoming in ReStat.
Amazing Bezos
A delightful thought from Pascal-Emmanuel Gobry at Business Insider.
If you had asked an 11-year-old Jeff Bezos to let his imagination run wild and think of the stuff that he would most dream to have as an adult, he might have said:
- The world’s biggest bookstore! Maybe even a bookstore that can beam any book directly to your hand in an instant (and movies and music, too!).
- A giant sky computer that can imitate human intelligence.
- A spaceship.
- …And maybe even a robot army.
Of course any adult would have smiled slightly condescendingly, patted him on the head and helpfully explained that these things aren’t possible.
A new and revised and more pessimistic view of U.S. manufacturing
Between 2000 and 2010, manufacturing output of computer and electronic products rose at a remarkable rate of almost 18 percent per year.
Over the same period, output in the rest of U.S. manufacturing remained roughly flat, according to Bureau of Economic Analysis figures tallied by Houseman. That’s a dismal showing for a decade.
It is only when computer and electronic products are included that overall manufacturing output registers the impressive increases. Though it represents 15 percent or less of manufacturing output, the sector’s strong growth makes the rest of U.S. manufacturing seem much more robust than it really is.
At the same time:
…much of the nation’s production of computers and electronics has moved overseas. The number of consumer electronics shipped from U.S. factories dipped about 70 percent between 2000 and 2010, according to the Census Bureau’s Current Industrial Report.
And:
…at least some of the productivity gains shown in U.S. computer manufacturing reflect the increasing power and decreasing prices that come with innovation. When a computer chip doubles in efficiency, that can turn up in a doubling of output and productivity in computer manufacturing. But that is not what is ordinarily thought of as manufacturing efficiency.
The article is here. It also makes the point that a lot of measure manufacturing productivity gains are actually the result of offshoring, not actual higher productivity in U.S. factories; “This bias may have accounted for as much as half of the growth of U.S. manufacturing output from 1997 to 2007, excluding computers and electronics manufacturing, Houseman and her co-authors have estimated.”
I thank Brent Depperschmidt for the pointer.
Assorted links
1. Scott on lunch at China Star.
2. Aristide update, the bottom line, worth a read.
3. High school graduation rate is showing progress.
4. Europe puts solar energy on standby, that was the headline in the print version of the story.
The quest for microfoundations
There has been recent debate in the blogosphere about what we learn from demanding microfoundations for macro results. I am a firm believer in microfoundations, while recognizing the abuses to which the concept has been put.
Via Mark Thoma, enter Robert Hall and his latest paper (pdf), here is the abstract:
The financial crisis of late 2008 shifted household expenditure downward, as financial institutions tightened lending standards and required repayment of outstanding consumer loans. The crisis also raised financial frictions by depleting the equity capital of financial institutions. The result was a severe reduction in business and residential investment expenditure. The zero bound on the interest rate worsened the adverse effects of these developments by limiting the corrective response of monetary policy. In a straightforward and comprehensible macro model, I measure the two financial driving forces by matching the actual and forecasted movements of two key variables, the unemployment rate and the investment/GDP ratio. I then use the model to describe a counterfactual economy over the period 2009 through 2020 in which the same increase in financial frictions occurred but no household deleveraging took place. The comparison of the counterfactual and actual economies reveals the separate effects of the two financial driving forces. Deleveraging had an important but transitory role immediately after the crisis, while high financial frictions account for the long period of high unemployment, depressed GDP, and subnormal investment.
Maybe you don’t agree with Hall (I am of mixed mind), but he gives us a systematic framework for analyzing the depth and length of the recent recession, noting that it is microfoundations but not strict DSGE because he wishes to create more space for changes in basic structural parameters.
I have three observations: a) such a paper would not have been possible without a microfoundations approach, b) Hall finds a strong role for intermediation, which is a favorite topic of the microfoundations advocates and a feature lacking in IS-LM models, and c) his methods suggest some weaknesses in the recent stress on deleveraging as the continuing plague, again noting this is a framework for discussion rather than the final answer.
The microfoundations approach proves its value virtually every day.
Timothy Noah’s *The Great Divergence*
The subtitle is America’s Growing Inequality Crisis and What We Can Do About It. His policy conclusions are:
1. Soak the rich
2. Fatten government payrolls
3. Import more skilled labor
4. Universalize preschool
5. Impose price controls on colleges and universities
6. Reregulate Wall Street
7. Elect Democratic Presidents
8. Revive the labor movement
This book is well-written and it is a useful survey of left-democrat points of view on the problem. I do not think most of these recommendations will much limit inequality (though they may have other virtues), but my main wish is that he had offered some additional possible solutions. #1 on my list is “more innovations which benefit virtually everybody,” which is how the last great equalization (1870-1970 or so) came about. Parts of his list, such as #3, get at this obliquely but it should be front and center of the entire book. Let’s debate how we can make that happen. If there were a new invention as important as the toilet, shareholders would not and could not appropriate most of the gains. “Deregulate housing” and “deregulate medical care” also deserve a ponder, as does “abolish occupational licensing” and “subsidize basic science.” That global inequality has fallen radically is understood and recognized but not emphasized. It is culturally beyond the pale — on the left at least — to write “encourage conversions to Mormonism” but as a recommendation it is right on the mark. This book needs more which is culturally beyond the pale. How about “run some of the bad schools with lots of discipline, more like the KIPP academy?”
Lunch with Scott Sumner (and others) at China Star
How is that for self-recommending? Here in a short paragraph is my current take on where Ben Bernanke would differ from Scott. As the shadow banking system was imploding in 2008, due to a downward revaluation of collateral, nominal gdp stabilization would have required that the Fed resort to the medium of currency printing on a very large scale. Scott favors such a move. Bernanke would worry that the collapse of (some) intermediation would mean you get most of the output losses anyway, while the printing of currency would create subsequent problems with management of expectations, relative sectoral shocks (currency is only a partial substitute for credit), and medium-term adjustment once the smoke has cleared, not to mention political relations with Congress and interest groups within the Fed system itself. Therefore Bernanke didn’t want to do it, even though in principle he likes to see nominal gdp stabilized, and has written and said as such.
I am not suggesting that Scott agrees with this perspective.
Assorted links
From the comments
From Dan Weber:
Maybe this should be posted once a week: http://www.marginalrevolution/2011/03/the-fallacy-of-mood-affiliation.html
Italy Fact of the Day
- Italian labor unions represent more retirees than workers.
From a good piece on reforming Italian labor law in the NYTimes.
Addendum: Some commentators are asking whether this is surprising. Answer: Italy has far more retired union members than any other European country. Circa 2003-2004 (when 48% percent of Italian union members were retired) in France and Germany just 20% of union members were retired, in the UK 10%, in Spain 4.5%. Oddly, I could not find a source for the US, although some unions like the UAW clearly have more retirees than members my guess is that the overall number is quite low and certainly well below the Italian rate.
*The Idea Factory*
I loved this book and devoured it in a single sitting. The author is Jon Gertner and the subtitle is Bell Labs and the Great Age of American Innovation. Here is one excerpt:
Scientists who worked on radar often quipped that radar won the war, whereas the atomic bomb merely ended it. This was not a minority view. The complexity of the military’s radar project ultimately rivaled that of the Manhattan Project, but with several exceptions. Notably, radar was a far larger investment on the part of the U.S. government, probably amounting to $3 billion as contrasted with $2 billion for the atomic bomb. In addition, radar wasn’t a single kind of device but multiple devices — there were dozens of different models — employing a similar technology that could be used on the ground, on water, or in the air.
One lesson of this book is how much war can spur innovation. Here is one Gertner article on the themes of the book. Here is a review of the book. Anyone interested in the history of science, tech, or innovation should buy and read this book.
Do we remember less well when we read from computer screens?
From Maia Slalavitz:
E-books, however, provide fewer spatial landmarks than print, especially pared-down versions like the early Kindles, which simply scroll through text and don’t even show page numbers, just the percentage already read. In a sense, the page is infinite and limitless, which can be dizzying. Printed books on the other hand, give us a physical reference point, and part of our recall includes how far along in the book we are, something that’s more challenging to assess on an e-book.
Jakob Nielsen, a Web “usability” expert and principal of the Nielsen Norman Group, believes e-reading does lead to a different type of recall. “I really do think we remember less” from e-books, he says. “This is not something I have formally measured, but just based on both studies we’ve done looking at reading behavior on tablets and books and reading from regular computers.”
He says that studies show that smaller screens also make material less memorable. “The bigger the screen, the more people can remember and the smaller, the less they can remember,” he says. “The most dramatic example is reading from mobile phones. [You] lose almost all context.”
I liked this sentence from the piece:
“We bombarded poor psychology students with economics that they didn’t know,” she says.
I would consider these results “speculative,” but the questions are nonetheless interesting to ponder. The full article is here.
Temporary vs. permanent increases in government spending
Not long ago Paul Krugman wrote:
To a first approximation, in other words, the effect of current fiscal policy — whether stimulus or austerity — an [on?] the actions of future governments is zero.
He makes further points at the link, although there is not a citation to the literature. I thought we should look at the evidence a little more closely. Some of it contradicts Krugman as read literally, though it is not all bad news for his larger point.
Here is an abstract from Brian Goff:
In spite of Peacock and Wiseman’s 1961 NBER study demonstrating the “displacement effect”, simplistic theoretical and empirical distinctions between temporary and permanent spending are common. In this paper, impulse response functions from ARMA models as well as Cochrane’s non-parametric method support Peacock and Wiseman’s conclusion by showing 1) government spending in the aggregate displays strong persistence to temporary shocks, 2) simple decomposition methods intended to yield a “temporary” spending series have a weak statistical foundation, and 3) persistence in spending has increased during this century. Also, as a basic “fact” of government spending behavior, the displacement effect lends support to interest group and bureaucracy models of government spending growth.
There is persistence to spending, although this study does not create a category for stimulus spending per se, however that concept might be defined. The work of Robert Higgs also provides a clear look at ratchet effects on government spending, control, and regulation, although Higgs focuses on war rather than spending. State governments also seem to exhibit a ratchet effect, whereby good times bring about permanently higher budgetary demands, if only through endowment effects, lock-in, and status quo bias.
That said, the federal debt/gdp ratio seems to show mean reversion, as does the measure of primary surplus. That would mean that fiscally troubled situations are followed by improvements, though not necessarily from spending decreases. In fact there has been considerable reliance on a “growth dividend.” And here is Henning Bohn from the QJE:
How do governments react to the accumulation of debt? Do they take corrective measures, or do they let the debt grow? Whereas standard time series tests cannot reject a unit root in the U. S. debt-GDP ratio, this paper provides evidence of corrective action: the U. S. primary surplus is an increasing function of the debt-GDP ratio. The debt-GDP ratio displays mean-reversion if one controls for war-time spending and for cyclical fluctuations. The positive response of the primary surplus to changes in debt also shows that U. S. fiscal policy is satisfying an intertemporal budget constraint.
In other words, we make up for first-temporary-then-permanent spending boosts by a mix of growth and higher taxes. Krugman might well be happy with that scenario, but the data do show intertemporal interdependence for budgetary decisions, with a mix of persistence on one variable (spending) and mean-reversion on another (debt-gdp ratio). And if you think a lot of government spending is inefficient, you should still be troubled by apparently “temporary” spending bursts.
As with much of macroeconomics, I would apply a good dose of agnosticism to these results (noting that agnosticism is not the same as assuming zero effect), but still the correlations are consistent with my intuitions more generally.
Assorted links
1. Zero- or positive-sum game?
2. Via Chris F. Masse, which classic books do the French buy? Asimov beats out Proust and Stendahl.
3. Interview with Martin Walser, on literature and religion.
4. More Charles Murray, on economic vs. cultural forces; “It is condescending to treat people who have less education or money as less morally accountable than we are. We should stop making excuses for them that we wouldn’t make for ourselves. Respect those who deserve respect, and look down on those who deserve looking down on.”
5. What lessons are other countries learning from the Greek default?
6. Article about me in Calcalist, Israeli periodical, in Hebrew.