Month: November 2012
Here is a Quora discussion of that question. I like “Traffic Signal with Hour Glass Timer” and “Cooking Solved.” “No more blind spots” is the one I would pay for.
For the pointer I thank Rob.
2. Just apply the usual stacked blog post title to this one, and more here.
My essay at Cato Unbound, Why Online Education Works, goes beyond much of the recent discussion to give specific examples of how online teaching increases the productivity and quality of education. Here is one bit:
Dale Carnegie’s advice to “tell the audience what you’re going to say, say it; then tell them what you’ve said” makes sense for a live audience. If 20% of your students aren’t following the lecture, it’s natural to repeat some of the material so that you keep the whole audience involved and following your flow. But if you repeat whenever 20% of the audience doesn’t understand something, that means that 80% of the audience hear something twice that they only needed to hear once. Highly inefficient.
Carnegie’s advice is dead wrong for an online audience. Different medium, different messaging. In an online lecture it pays to be concise. Online, the student is in control and can choose when and what to repeat. The result is a big time-savings as students proceed as fast as their capabilities can take them, repeating only what they need to further their individual understanding.
More at the link including a discussion of how most of my teaching career happened in 15 minutes.
Responses from Siva Vaidhyanatha (Robertson Professor in Media Studies at the University of Virginia), Alan Ryan (former Warden of New College, Oxford) and Kevin Carey (Director of the education policy program at the New America Foundation) follow later this week.
First, I don’t like calling it the fiscal cliff; it is not a cliff and in any case, as with “austerity,” why not disaggregate the issues? James Hamilton provides some useful numbers on the components.
Today I wish to raise two questions:
1. If we don’t take “tough fiscal action” this time around, how much more will those special fiscal privileges (I’m not sure there is a single appropriate neutral term for the whole of them) become entrenched and difficult to dislodge, even when later macroeconomic conditions call for such?
2. What is the underlying rate of growth in the U.S. economy today, and how much higher (lower?) is that rate likely to rise (fall) over the next ten or so years? In other words, how much better (worse) an environment will we have for fiscal consolidation in the medium-term future? And at higher rates of growth, if we get them, how much harder is it to dislodge special fiscal privileges?
I submit that no one has very good or very certain answers to these questions, given the current states of public choice theory and the macroeconomics of growth. And if analysts do not have very good answers to these questions, dogmatic positions about the “fiscal cliff” are to be avoided.
If you read analyses which do not raise and consider these questions, fear that snake oil is being served up.
I don’t expect I’ll be doing any day-by-day tracking of this new Washington drama, but it would not hurt to remind yourself of this post every few days or so.
You can read him here. Keep in mind we are talking about a sudden leap upward in interest rates, a sharp rise in the risk premium, and a sudden fall in bond prices. In response, I suggest a multi-step program:
1. Read Gary Gorton on how much the decline in the value of mortgage securities — if only as collateral — damaged the global economy during 2008 by causing a credit collapse, including in but not limited to the shadow banking system.
2. Estimate size of said effect for a serious price decline for U.S. Treasury securities, a much larger and more central and otherwise more secure market. Do not leave out margin call effects or negative effects on the eurozone.
3. Compare said effect to short-run benefits from exchange rate depreciation, taking into account lags and J-curve effects and the relatively closed nature of the American economy and the slowdowns in other countries around the globe.
4. Run a Chicago Booth questionnaire study to see how much of the profession will agree with you.
5. Flee in panic.
6. Start praising the Republican Party for their macroeconomic acumen in damaging the credit reputation of the U.S. government.
7. Declare yourself an “elasticity optimist” when it comes to relative price shifts and lower tax rates. Team up with the U.S. Chamber of Commerce to write a study calling for the immediate slashing of corporate tax rates, or at least corporate tax rates as applied to exports. The theory of exchange rate incidence is the theory of tax rate incidence, and furthermore, by happy coincidence, lower tax rates do not involve all of the costs of a financial crisis.
8. Ponder technical questions such as “if I think bad news is more than offset by gains from exchange rate depreciation, do I also think that good news is more than offset by losses from exchange rate appreciation?”
9. Read Thucydides, or perhaps Broadwell, about how a crisis is not always manageable once underway.
Krugman’s is a reckless position, and simply noting that America borrows in its own currency doesn’t come close to defending it.
Both of these articles are from this evening’s New York Times:
Furthermore the reports seem pretty plausible. If you foresaw both of these trends five years ago, bravo to you. If you didn’t (or even if you did), the case for epistemic humility remains worthy of your attention.
3. How not to give a gift to the President of the United States, Homeland edition.
4. Danish molecular gastronomy set to revolutionize Bolivia? And The Day of the Skulls in Bolivia (good photos).
Lots more material available at MRUniversity this week in our sections on Trade and on Property Rights. We review comparative advantage in three videos that will be useful to principles students and also for professors looking for an additional resource to assign students. We cover Trade and Tariff History and look at Trade and Poverty in India among other topics. We then cover property rights beginning with basic issues of private vs. collective property and moving to property titling. Finally, we take a look at James Scott’s argument that fee-simple property rights developed because of government taxation in our video on Communal Property, Enclosure and the State.
And Andres Marroquin writes:
I think everybody should see a recent Alex Tabarrok’s class on the effect of geography on institutions and long term economic growth. It is here, and it is superb!
See the link for further comments from Andres.
Suppose that what makes a person happy is when their fortunes exceed expectations by a discrete amount (and that falling short of expectations is what makes you unhappy.) Then simply because of convergence of expectations:
- People will have few really happy phases in their lives.
- Indeed even if you lived forever you would have only finitely many spells of happiness.
- Most of the happy moments will come when you are young.
- Happiness will be short-lived.
- The biggest cross-sectional variance in happiness will be among the young.
- When expectations adjust to the rate at which your fortunes improve, chasing further happiness requires improving your fortunes at an accelerating rate.
- If life expectancy is increasing and we simply extrapolate expectations into later stages of life we are likely to be increasingly depressed when we are old.
- There could easily be an inverse relationship between intelligence and happiness.
From a Metafilter discussion, here is one comment:
Music distribution, music purchasing and the ethics around them have changed. When I was a mere slip of a girl, it really mattered whether one was on a major label or not, and everyone knew someone who ran a tiny label out of their bedroom, etc etc. I can’t get over how my fellow anarchists listen to, like, Beyonce. That would not have gone over well in 1996. As a result, fashion/music subcultures are, I think, more permeable and fluid, and there’s less oppositionality associated with music.
Also, fast fashion and big changes in the distribution and status of vintage and thrift store fashion. I’d argue that up through the nineties, second hand clothes were a little bit declasse; they aren’t anymore. Clothes more than 20 years old were easy to find in the thrift stores and were of fairly high quality. Now even the last of the union-made eighties clothes are hard to find and can be quite pricey. (I mean, I remember when I bought a 50s silk-satin Dior dress – not atelier, but still – for $5.99 at Saver’s.) So style changes faster and it’s harder to associate style with oppositionality and with a stable ‘style tribe’.
“Style tribes” themselves are pretty well commodified, too – you can make a nice living catering to goths or VLV folks or whatever. So there’s less, I guess, libidinal investmentthere.
Also, life is more precarious and it’s harder to get work. Back when I was properly young in the nineties, if you didn’t have a job you could just temp. It wasn’t fun (remember that zine Temp Slave) but you could keep a roof over your head. A lot easier to do subculture stuff then. Even the serious anarchists I know now scrabble a lot more for work, food and money than back then.
Rents are higher – where in 1995 you could run a whole anarchist community center on $300/month plus utilities – which could be paid with three people who had jobs and could chip in $100 each, now you’re looking at $1200/month plus utilities and fewer people who can kick down $100.
I mean, there’s still plenty of youth fashion, music and neat stuff going on – it’s just that the support structures are more fragile and temporary and the borders between things are thinner.
1. World’s First 3D Printing Photo Booth to Open in Japan, where you can have your portraits taken, except instead of a photograph, you’ll receive miniature replicas of yourselves. Three sizes and prices will be available, approximately 4 inches ($262), 6 inches ($400) and 8 inches high ($525).
That is from Mark Perry, there is a bit more on London and New Jersey at the link.
That is a new and forthcoming book from Wayne A. Leighton and Edward L. Lopez, and the subtitle is The Economic Engine of Political Change. Here is my blurb:
Ideas matter. Madmen, with its engaging stories, is perfect for anyone interested in public policy, or how our world could be a better place. Read it, and assign it to your class.
5. Your first name is not as special as you think. (When I was a kid the only other “Tyler” was Henry Kissinger’s dog, or so I had thought; now it is quite common as a name.)
7. Litterman interviews Eugene Fama, who still deserves a Nobel Prize.
Paul Krugman writes out a simple model (pdf), source here, and summary here: “Because America has its own currency and a floating exchange rate, a loss of confidence would lead not to a contractionary rise in interest rates but to an expansionary fall in the dollar.”
I see it differently. The confidence loss brings upward pressure on the real borrowing rates, and the Fed pumps out money to keep the short-run nominal interest rate down (have zero lower bound issues gone away?). Because of expected price inflation, the long-run nominal interest rate goes up and the medium-run interest rate goes up too. The long and medium real interest rates go up and stay up. There is no long vs. short-run interest rate distinction in Krugman’s model.
Exactly what happens with short-run interest rates depends on credibility and how much inflation the public is willing to accept. I would say this: the counterfactual of a bond vigilantes attack already means the public refuses to turn over much more of its wealth to the government. So most likely we have higher medium- and long-term real and nominal interest rates and chaos on the short rates, with no pretty scenario in sight. Eventually the short rates probably will rise too.
I do see that Krugman has written: “…inflation and expected inflation could matter, but I don’t think they do in this case, so that I suppress them for the sake of simplicity.” In essence, in his model, the central bank can push down “interest rates” (in general) without bearing any inflation repercussions. Of course that eases the problem but it seems oddly unremoved from the real world problems of central banking.
A few years ago, Brad DeLong wrote correctly:
International finance economists see a far bleaker future. They see the end of large-scale dollar-purchase programs by central banks leading not only to a decline in the dollar, but also to a spike in U.S. long-term interest rates, both nominal and real, which will curb consumption spending immediately and throttle investment spending after only a short lag.
To be sure, international finance economists also see U.S. exports benefiting as the value of the dollar declines, but the lags in demand are such that the export boost will come a year or two after the decline in consumption and investment spending. Eight to ten million workers in America will have to shift employment from services and construction into exports and import-competing goods. This cannot happen overnight. And during the time needed for this labor market adjustment, structural unemployment will rise. Moreover, there may be a financial panic: large financial institutions with short-term liabilities and long-term assets will have a difficult time weathering a large rise in long-term dollar-denominated interest rates. This mismatch can cause financial stress and bankruptcy just as easily as banks’ local-currency assets and dollar liabilities caused stress and bankruptcy in the Mexican and East Asian crises of the 1990’s and in the Argentinean crisis of this decade.
That is followed by a very good short discussion of inflation and monetary policy, consistent with my views above. Brad closes with an excellent bit, including:
Serious economists whom I respect enormously find themselves taking strong positions on opposite sides of this debate.
So I am baffled when Krugman writes: “But it’s really hard to create a scenario in which the bond vigilantes actually cause a contraction rather than an expansion when they attack.” And then he writes:
So what are the fiscal fear types thinking? Basically, they aren’t.
Only a few years ago, Krugman had a well-worked out and indeed quite admirable version of a problematic scenario, starting on p.454 and running through the conclusion, where it is presented as plausible, including by his commentators. Note that this isn’t a “does Krugman have the right to change his mind?” issue (of course he should and he did change his mind on the likelihood of such an attack coming soon). This is a theory question, where we consider the assumption of a vigilantes attack, and work through the theory, while admitting it probably is not imminent. The theory hasn’t changed in the last five years, and Krugman’s current discussion hasn’t caught up with the theory from five years ago.
If you would like data, here is Ricardo Hausmann et.al. on the Latin American move to floating systems and how it has affected their financial crises:
This paper attempts to assess the performance of alternative exchange rate regimes in Latin America relative to the benefits they are theoretically supposed to deliver. We will test empirically whether flexible systems allow for better cyclical management, more monetary autonomy and improved control of the real exchange rate. We find that flexible exchange regimes have not permitted a more stabilizing monetary policy but instead have tended to be more pro-cyclical. In addition, flexible regimes have resulted in higher real interest rates, smaller financial systems and greater sensitivity of domestic interest rates to movements in international rates.
Post eurozone crisis, the fixed rates probably look worse again in a broader data pool, but still there is plenty of well-known, mainstream evidence that floating rates don’t always give such an expansionary response to a financial crisis, even if they sometimes do. Again from the Hausmann paper:
…interest rates moved the least in countries with no exchange rate flexibility! In Argentina and Panama there were very small movements in the domestic interest rate. In contrast, countries with formally floating systems such as Mexico and Peru saw very large interest rate movements. The same can be said of Chile, which started the period with a very wide exchange rate band.
This doesn’t boil down to the usual ideological disputes. If anything, I am taking the position more skeptical of the claims of Milton Friedman. It’s simply that, with the fiscal cliff approaching, I see an Orwellian memory hole here.
From a reader email:
This hypothetical question just popped into my head and after mulling it over for a while it occurred to me that it’s really a great stagnation question.
“Would you trade your last five years of life to always have the best personal technology provided to you (iPhones, iPads, google glass, whatever implantable, wearable things are coming) if the consequence of not making the trade was that you were limited to basic desktop technology for the rest of your life?” The decision must be made now and is binding. Right now I think I would make the trade because I would hate to miss out on all the things that are coming. I think I would have said no in 1995. Does that make me a great stagnation skeptic?
I love your blog.
Go for the years, I say. But at “six months” it is a tougher call…and perhaps Ed is a younger man than I am. I certainly would advise an eighty-year-old to take the years, or for that matter the six months.