Month: July 2012

I once suggested this in jest

Yet Ireland will do it for real:

About 1,850 housing developments, unfinished after the bubble burst in 2008, pockmark the Irish landscape, according to government figures. This week, Ireland’s National Asset Management Agency, the state agency set up in 2009 to purge banks of their most toxic commercial property loans, started the destruction of an apartment block for the first time.

“There’ll be some places where the most sensible decision that can be made will be to demolish,” Housing Minister Jan O’Sullivan said in an interview in her Dublin office on July 10. “If nobody wants to live in them, then the most practical thing to do possibly will be to demolish what is there.”

In part it is a safety issue.

What if there is a rain delay?

Slim and bespectacled, Elmendorf could play a college professor on TV.  “A quiet man who thinks carefully about everything,” the New York Times once said of him.  Indeed, he deliberately chose a baseball game for one of his first dates with his future wife.  “You want to be sure there’s something going on to fill the lull in the conversation but not like a movie where you can’t talk,” he explained.

That is from David Wessel’s Red Ink: Inside the High-Stakes Politics of the Federal Budget, which I enjoyed very much.

My favorite things China

1. Novel: Soul Mountain, by Gao Xingjian.  Parts of Dream of the Red Chamber are splendid, but it is hard to keep track of the whole thing and also I wonder whether any of the available editions in English are satisfactory.

2. Movie: The Story of Qiu Ju.  A real charmer.

3. Comedian: Jackie Chan.

4. Movie, set in, but not a Chinese movie: How about TranssiberianShanghai Noon?  Are any of those old movies set in China any good?

5. Book, non-fiction: James Fallows, China Airborne.  I am also a fan of the book where the guy drives a car around China.  The Private Life of Chairman Mao is a stunner, maybe the best book I know on tyranny.

6. Book, set in, fiction (not by Chinese author): Edgar Snow, Red Star Over China.  Pearl Buck I find boring.

7. Sculpture: Tang horses, some images are here.

8. Contemporary Chinese artist: Cai Guo-Qiang, images here.  His one man show at the Guggenheim is one of the best exhibitions I’ve ever seen.  Try this video, apologies for the ad at the beginning.

9. Chinese traditional music: I am interested in Chinese opera, but don’t quite feel I’ve heard the real thing.  I once heard an electrified performance, but my sense is the music is all about the timbre and needs to be heard in an nowadays-almost-impossible-to-achieve setting, given that I am not a 17th century Chinese noble.  Any advice?  By the way, here is a good article on recent developments in Chinese (semi-classical) music.

10. Cookbooks: Fuchsia Dunlop’s two Chinese cookbooks are not only two of the best cookbooks ever they are two of the best books ever.

11. Best book about Chinese fiction: Sabina Knight, Chinese Literature: A Very Short Introduction.  This short book is a marvel of economy, substance, and style.

12. Pianist: Yundi Li, try this video of Chopin’s 2nd Scherzo.

13. Architect: I.M. Pei.  We have friends who live in a Pei-designed house, and it is splendid.

14. Movie director: John Woo was born in China.  The Killer might be his best movie, but Once a Thief is arguably the most underrated.  WindTalkers is quite good too and also underrated.

I am not counting either Hong Kong or Taiwan for these categories.  I also am not counting American-born, ethnic Chinese, such as Maya Lin.  And J.G. Ballard was born in Shanghai, but what category do I put him in?

The value of microfoundations

Here is Noah Smith on microfoundations, responding to Matt Yglesias (here and here, here is also a Krugman post on the topic).  I am usually pro-microfoundations, though without any particular philosophy of science-derived attachment to the idea.  Here is why:

1. In some very important, simple, and intuitive models, there is nominal stickiness but money is still neutralCaplin and Spulber 1980 is one of my favorite pieces and time spent studying their model will be repaid with value.  I don’t think the model applies to 2007-2009, or say 1929-1933, when we have “out of the ordinary” shocks, but it may apply to many other time periods.

2. Often the data suggest that money is neutral or roughly neutral or at least the data are not inconsistent with neutrality.  I know that one does not hear much about that in today’s economics blogosphere, but I kid you not.  Again, I differ strongly from this literature for “the times which really matter,” such as 2007-2009 or 1929-1933, but still I take the data seriously.  Try this relatively “atheoretical” piece by Harald Uhlig, which does not reject monetary neutrality (nor does it cover 2007-2009).  Nominal stickiness models have trouble explaining why money doesn’t matter more than in fact it does.  Understanding microfoundations will keep you out of the trouble you will get in if you keep trying to use money to expand output.

3. We can try to nudge people into more flexible wages, but again that requires some understanding of microfoundations.  The Fed can prevent any risk of a deflationary downward spiral, and please note it is no coincidence we are in the two percent inflation range.  You don’t have to view this as a high return activity to favor it  (it is funny how the mere mention of wage nudges will cause many people to suddenly turn against the nudge idea, at least temporarily.)

4. Microfoundations don’t have to mean intertemporal maximization with extreme assumptions about rational or well-behaved preferences.  George Akelof has written some of the best papers on microfoundations.  Nor do microfoundations have to mean staking out an extreme position on the Lucas critique.

5. There are plenty of flex-wage professions which still have been seeing high unemployment.  Like real estate agents.  Or what happened to all those Mexicans who used to stand around on street corners?  Were their wages sticky too?  I don’t think so.  Does their return to unemployment or underemployment in Puebla refute the sticky wage model?  I personally don’t think so, but it’s hard to answer that question — an obvious one to a critical observer — without a clear sense of microfoundations.

6. Just how bad is monopoly?  We wish to know when designing a competition policy.  Under some microfoundations models, the existence of market power is essential for ongoing stickiness, in other models not.  This question matters, and we need microfoundations to better resolve it.

7. Should a government subsidize, tax, or be neutral toward contract indexation?  Try answering that question, or even getting started on it, without some sensible microfoundations.

8. If you are trying to end a hyperinflation or high rate of inflation, do you need to get fiscal policy right, in some kind of credible manner, before enacting monetary restraint?  It is hard to imagine answering this question without good microfoundations.

I could go on.  I am worried that people are rejecting microfoundations because they think microfoundations imply objectionable attitudes toward macro policy.  But note: if those attitudes are objectionable and indeed wrong, they won’t be implied!  It is entirely defensible to argue “we should have a more expansionary monetary policy today, even without the microfoundations to support that view.”  It is much tougher to argue “economics should deemphasize microfoundations altogether.”  The broader the range of questions one considers, the more important microfoundations turn out to be.

A password so secret even you don’t know it

From Rebecca Rosen:

Researchers from Stanford, Northwestern, and SRI have a new paper laying out a crafty little solution: Make people memorize passwords that they don’t know. If you don’t know your password, you can’t tell it to anyone.

Huh? How can you have a password you don’t know?

Perhaps the best analogy is the playing of a song on a musical instrument. If you’ve ever memorized a piece of music, you know that, given the instrument, you could play it no problem. The piece is in your muscle memory. But given a staff sheet and a pencil, writing it out would be a challenge. You would need to thump it out with your fingers and write down your observations, but you don’t just know the order of the notes.

…The catch is that unlike a piece of music, for which you’ve memorized a sequence that someone could, perhaps, record if they watched you tap it out enough times, this system then “tests” whether you are the real you, by having you “play” all sorts of strands, with the ones you’ve practiced mixed in. Only someone who has received the training will play their own sequences more smoothly and rapidly. “A performance gap that is substantially different from the one obtained after training indicates an attack,” the authors explain.

In effect, the software is creating a code by which you can say, I am who I say I am, and the computer recognizes it. Of course, all passwords convey that to some extent, this one is just much, much harder to pass on.

CBO forecasts Medicaid Wars

In 2022, for example, Medicaid and the Children’s Health Insurance Program (CHIP) are expected to cover about 6 million fewer people than previously estimated, about 3 million more people will be enrolled in exchanges, and about 3 million more people will be uninsured…

Only a portion of the people who will not be eligible for Medicaid as a result of the Court’s decision will be eligible for subsidies through the exchanges. According to CBO and JCT’s estimates, roughly two-thirds of the people previously estimated to become eligible for Medicaid as a result of the ACA will have income too low to qualify for exchange subsidies, and roughly one-third will have income high enough to be eligible for exchange subsidies.

There is more here.

Iceland and Ireland

From a new Mercatus working paper by David Howden, here is the conclusion:

When the tale of these two crises is told, the conclusion is typically that one set of policies was more beneficial than the other. In this paper we have shown that the truth lies somewhere in the middle. Icelanders have benefited by evading a debt overhang through an undue bank bailout that has shielded entrepreneurs and investors from losses. The Irish commitment to open capital flows and willingness to reduce domestic prices to regain competitiveness has allowed prices to return to levels necessary for entrepreneurs to use as signals to invest. Countries facing similar crises—be they currency, banking, or general economic crises—would be well-advised to heed these two lessons when drafting recovery plans of their own.

The future of the war on drugs

At the same time, one branch of that thinking has itself evolved into a new project: the notion of creating downloadable chemistry, with the ultimate aim of allowing people to “print” their own pharmaceuticals at home. Cronin’s latest TED talk asked the question: “Could we make a really cool universal chemistry set? Can we ‘app’ chemistry?” “Basically,” he tells me, in his office at the university, with half a grin, “what Apple did for music, I’d like to do for the discovery and distribution of prescription drugs.”

Here is more, hat tip goes to the excellent Eli Dourado.

From Scott Sumner (I agree)

It’s beginning to look like Keynes was wrong about liquidity traps, at least when he argued that there’s a certain minimum nominal yield that government bond investors demand, and that long term rates can be reduced no further.  Wherever people draw a line, bond yields just seem to plunge right through, to one record low after another.  And we know from Japan that they can go even lower.  But what does this mean?

It probably means multiple things.  For instance it suggests that the Keynesian/market monetarist AD pessimists and the Great Stagnation AS pessimists are both right.  We are looking at BOTH low inflation and low real GDP growth for many years to come.  Why don’t I think AD explanations are enough?   Partly because even the 20 year T-bond now has a negative real yield. Indeed it suggests the Bernanke “global savings glut” hypothesis is also correct, a point I’ve argued previously.  Japan is the future of the world.

Here is more.  And this:

The rate of nominal GDP growth in the US over the past 3 years has been above 4%, which is considerably higher than in Japan.  I would have thought that might well be enough.  (The fact that it wasn’t makes me think Japan is light years away from exiting the zero bound.)

Gary Gorton’s *Misunderstanding Financial Crises*

Everything by Gary Gorton is worth reading.  I am not sure when this book is due out (Amazon claims Nov.2012), but it is not out yet.  The link is here.

Imagine a rewriting of earlier American financial history, though the lens of our recent financial crisis and extant ideas about bank runs through the shadow banking system.  Here are two short bits:

And interestingly, the figure below shows that capital input was actually higher in countries that did not have capital requirements.

…Bank capital was not the focus of bank regulation until recently.  In the 1980s regulators began focusing on bank capital as a buffer against idiosyncratic bank failures and associated losses that could have bankrupted the deposit insurance fund.  But it has been recognized that historically systemic bank crises are about cash.  They can be prevented or mitigated by the design of regulatory infrastructure, whether it is public or private.  They cannot be prevented by bank capital.