Month: December 2012

Assorted links

1. Garett Jones and the role of Fannie and Freddie.

2. The Bloomberg best books of the year list.

3. Rogoff comments on the stagnationists, and are we running out of phosphate reserves?

4, MIE: precious friends become precious gems.

5. Christmas video about macro, will offend some of you.  Worth a view in any case!  By John Popola, and it considers Malthus on aggregate demand.

6. Outcompeting the driverless car (does the theory of comparative advantage apply to dogs?), caveat emptor.

7. Cass Sunstein is now on Twitter.

What the Beckworth diagram really means

From my earlier post, here it is again (and Beckworth here, with links to critics, Krugman here, and see also @ProfSufi on Twitter):

As Scott already has stressed, this is about whether the liquidity trap makes the Fed impotent.

My view is this: The Fed cannot very well control ngdp during a credit collapse (parts of 2008-2009) but it can control ngdp in a so-called “liquidity trap.”

I view my theory as consistent with this graph, rather obviously consistent.

Scott and I think David believe something more like: “The Fed can always control ngdp.”

That means they have to think Bernanke made a huge error and indeed they do think that.  (I think Bernanke was slow to react along the longer-run ngdp forecast dimension, but I am more sympathetic to B. than they are, as I don’t think currency is such a useful substitute for collapsing credit, contra Fama 1980.)

Here is the key question: what do the liquidity trappers think?

That this ngdp path is a coincidence?  That fiscal policy has been keeping it on an even keel in more recent times?  (Implausible for 2010-2012, given other claims they make about fiscal policy, plus implausible more generally.)  That some other process — which? — drives the ngdp path?

The problem with the debate, so far, is that we don’t yet know which clear alternative theory of 2010-2012 ngdp determination the liquidity trappers are proposing.

Sufi, by the way, is complaining that Beckworth (and others) are passing over Romer and other empirical pieces on stimulus, but David is pretty clearly covering “the multiplier contingent upon a reaction function of the monetary authority, with the monetary authority moving last and having control over ngdp.”  I have discussed these matters with David and he is not behind the academic discussion here but rather very often ahead of it.  He has a clearer theory of ngdp determination than do the liquidity trappers, even if I do not agree with his theory in every regard.

I would very gladly have a more transparent debate on ngdp path determination, noting in advance that I personally do not think it would go very well for the liquidity trap hypothesis.

Addendum: This paper surveys some relevant issues from the theory side, although it is not my preferred approach.

Taxi Tip Nudge

NYTimes: New York’s cabbies howled when the city began forcing them to take credit cards. Some even went on strike, calling the requirements a kowtow to tourists and a burden on drivers.

But two years later, the back-of-the-cab swipe has emerged as an unlikely savior for New York’s taxi industry, even as other cities’ fleets struggle to find fares in a deep recession.

The saving grace appears to be a simple nudge. Before the credit card swipe system the average tip was around 10% but the computer offers three tip sizes 30%, 25%, 20% and the average tip has now risen to 18-22%!

Joshua Gross estimates, that this simple nudge has increased the income of taxi drivers by $144 milion per year. Had the drivers demanded this increase via an increase in rates it probably never would have happened.

Sometimes it can be better to be nudgy than pushy, even in New York.

Hat tip: Cheap Talk.

My favorite things Israel

1. Film: A rich and rapidly improving genre.  My favorites are Lebanon or Waltz with Bashir, with a sentimental nod to Yana’s Friends, which isn’t great but I saw it on my second date with Natasha.

2. Movie, set in (non-Israeli): I don’t like Exodus, so can I cite the Mel Gibson movie?  Are we totally sure that it is indeed set in Israel?  What else am I missing?  “Painting, set in” would be a fun category, but too hard to choose.

3. Actress: Natalie Portman is excellent in Closer.

4. Classical musician: Daniel Barenboim, Yefim Bronfman, Ivry Gitlis, and Eliahu Inbal would be at the top of a pretty long list.  Perlman has a style too aggressive for my taste, at least as it comes across on disc.

5. Fiction author: I very much admire and enjoy David Grossman’s To The End of the Land.

6. Philosopher: Joseph Raz, especially his The Morality of Freedom.

7. Non-fiction author: Daniel Kahneman’s Thinking, Fast and Slow is splendid.  Tom Segev could be a runner-up.

8. Co-author: Amihai Glazer, from UC Irvine.

9. Other economists: Donald Patinkin, Ariel Rubinstein, Ehud Kalai, Jacob Frenkel, Dan Ariely, Robert Aumann, Sergiu Hart, Elhanan Helpman, Reuven Brenner, Zvi Hercowitz, Oded Galor, Michael Bruno, and Stanley Fischer would be a few others.  Overall the country is strong in game theory and monetary economics, as well as economics more generally.

I strike a zero when it comes to popular music.  I don’t like Kiss/Gene Simmons, and Israeli popular music I don’t know well but from a distance I do not expect to like it much.  The visual arts are also not obviously strong, though perhaps you can enlighten me in the comments.

Measuring the distribution of spitefulness

There is a new paper by Erik Kimbrough and J. Philipp Reiss, of importance for my world view:

Spiteful, antisocial behavior may undermine the moral and institutional fabric of society, producing disorder, fear, and mistrust. Previous research demonstrates the willingness of individuals to harm others, but little is understood about how far people are willing to go in being spiteful (relative to how far they could have gone) or their consistency in spitefulness across repeated trials. Our experiment is the first to provide individuals with repeated opportunities to spitefully harm anonymous others when the decision entails zero cost to the spiter and cannot be observed as such by the object of spite. This method reveals that the majority of individuals exhibit consistent (non-)spitefulness over time and that the distribution of spitefulness is bipolar: when choosing whether to be spiteful, most individuals either avoid spite altogether or impose the maximum possible harm on their unwitting victims.

I put Bryan Caplan on the “least spiteful” side of the distribution.

For the pointer I thank (the non-spiteful) Michelle Dawson.

Sentences to ponder

Is it better to raise rates or cut loopholes?  Maybe conservatives should be preferring the boost in rates.  From Kevin Drum:

…which is simpler and easier, raising rates or closing loopholes? I’d say raising rates is easier, and if it’s done now it will make it harder to raise them again in the future. This means that if Democrats want to soak the rich again, they’ll have to do it via closing loopholes, which is a harder lift.

Second, there’s Coburn’s point. If you want to have any chance at all of broadening the base and lowering rates in the future, you can’t close loopholes now. You need to leave them there as bargaining chips. Tax reform will be more likely if rates are higher (making them easier to lower) and loopholes are all still intact (giving you plenty of stuff to close in return for lowering rates).

Does it matter who gets the money first?

Here is Scott Sumner, gently poking Richard Cantillon and the Austrians:

This is a good example of the fallacy of composition.  In aggregate, the total level of nominal purchases is constrained by the amount of currency in circulation.  But not at the individual level.  Hence being the first to get the new money doesn’t confer any advantage at all–as the new money has no more purchasing power than the existing money.  A dollar is a dollar—and a $100 bill is a $100 bill.

Read the whole thing, there is much more, and here Scott follows up.

Does the theory of comparative advantage apply to horses?

And if not, why not?  Where exactly does the model fail to apply to our equine friends?

Beginning in the late 19th century, and with increasing mechanization in the 20th century, especially following World War I in the USA and after World War II in Europe, the popularity of the internal combustion engine, and particularly the tractor, reduced the need for the draft horse. Many were sold to slaughter for horsemeat and a number of breeds went into significant decline.

The link for that is here, and for the pointer I thank Braden Anderson.

What I’ve been reading

1. Rwanda, Inc., by Patricia Crisafulli and Andrea Redmond.  The positive story on that country, though I don’t buy it, given that the broader region still is not close to peace.  Governance problems will do them in.

2. Bernard Bailyn, The Barbarous Years: The Peopling of British North America: The Conflict of Civilizations, 1600-1675.  It is stunningly good, not just “stunningly good for a 90-year-old.”

3. Bee Wilson, Consider the Fork:  A History of How We Cook and Eat.  The first 61% of this book, as measured by Kindle, is fascinating and superbly original.  The rest is a well-done retread of other intelligent popular food books.  That is for me a high ratio of excellent to good.

4. Kevin Powers, The Yellow Birds: A Novel.  Everyone else loved it, though for me it was too impressionistic.  Call it my fault.

5. Benoit Peeters, Derrida: A Biography.  An excellent book, though I find it hard to care.  Easier than reading Derrida, and the author doesn’t make the mistake of trying to tell you what Derrida is all about.

I have not yet seen a copy of Erik Angner, A Course in Behavioral Economics, but perhaps it is of interest.

Exploratory trading

Adam D. Clark-Joseph, from Harvard, has a job market paper on high-frequency trading and here is the abstract:

Using comprehensive, account-labeled message records from the E-mini S&P 500 futures market, I investigate the mechanisms underlying high-frequency traders’ capacity to profitably anticipate price movements. Of the 30 high-frequency traders (HFTs) that I identify in my sample, eight earn positive overall profits on their aggressive orders. I find that all eight of these HFTs consistently lose money on their smallest aggressive orders, and these losses are not explained by inventory management. These losses on small orders, as well as the more-than-offsetting gains on larger orders, could be rationalized if the small orders provided some informational value, and I model how a trader could gather valuable private information by using her own orders in an exploratory manner to learn about market conditions. This co-exploratory trading  model predicts that the market response to the trader’s co-exploratory order would help to explain her earnings on her next order, but would not explain any other traders’ subsequent performance [TC: note that I’ve tried to correct for garbled text in my reproduction of this last sentence]. In direct confirmation of the model’s predictions, I find that a simple measure of changes in the orderbook immediately following small aggressive orders placed by the eight HFTs explains a significant additional component of those HFTs’ earnings on subsequent, larger orders, but this information offers little or no additional power to explain other traders’ earnings on subsequent orders. These findings help to clarify nature of the information on which HFTs trade and offer a starting point to address the open questions about social welfare implications of high-frequency trading.

Here is a new report of a very different study of HFT, which I have not yet had the chance to read.  On the surface it simply appears to suggest that most people trade too much.

Mustache markets in everything

…not all mustaches are created equal, and in recent years, increasing numbers of Middle Eastern men have been going under the knife to attain the perfect specimen.

Turkish plastic surgeon Selahattin Tulunay says the number of mustache implants he performs has boomed in the last few years. He now performs 50-60 of the procedures a month, on patients who hail mostly from the Middle East and travel to Turkey as medical tourists.

He said his patients generally want thick mustaches as they felt they would make them look mature and dignified.

“For some men who look young and junior, they think (a mustache) is a must to look senior … more professional and wise,” he said. “They think it is prestigious.”

Here is more and for the pointer I thank Michael Wellhouse.  And to overcome the shortage of collateral:

Men swore on their mustaches in sayings and folk tales, used them as collateral for loans and guarantees for promises, and sometimes even shaved their opponents’ lips as a punishment.

Does the theory of comparative advantage apply to dolphins?

Yes, at least so far it does, these are not ZMP dolphins:

The US Navy’s most adorable employees are about to get the heave-ho because robots can do their job for less.

The submariners in question are some of the Navy’s mine-detecting dolphins which will be phased out in the next five years, according to UT Sand Diego.

The dolphins, which are part of a program that started in the 1950’s, have been deployed all over the world because of their uncanny eyesight, acute sonar and ability to easily dive up to 500 feet underwater.

Using these abilities they’ve been assigned to ports in order to spot enemy divers and find mines using their unparalleled sonar which they mark for their handlers who then disarm them.

However, the Navy has now developed an unmanned 12-foot torpedo shaped robot that runs for 24 hours and can spot mines as well as the dolphins.

And unlike dolphins which take seven years to train, the robots can be manufactured quickly.

The new submersibles will replace 24 of the Navy’s 80 dolphins who will be reassigned to other tasks like finding bombs buried under the sea floor — a task which robots aren’t good at yet.

The story is here, and for the pointer I thank the excellent Daniel Lippman.  This is by the way a barter economy:

During their prime working years, the dolphins are compensated with herring, sardines, smelt and squid.

Copyright Unbalanced

Virginia Postrel has a good piece on free market copyright reform:

Making the intellectual case, the Mercatus Center at George Mason University, a hub of free-market scholarship, has just released “Copyright Unbalanced: From Incentive to Excess,” a collection of libertarian and conservative critiques. The book doesn’t oppose copyright per se, but it excoriates the current system’s lengthy terms and expansive enforcement powers.

“Whatever your philosophical position, if you are skeptical of government power, you should likewise be skeptical of the copyright system that has developed over the last century,” writes Jerry Brito, the volume’s editor, in the introduction.

…Consider how the law applies to Robert Frost’s classic poem “Stopping by Woods on a Snowy Evening,” first published in 1923. Back then you only got copyright privileges for works officially registered with the copyright office, and only for a term of 28 years, which could be renewed if you filed again, as Frost did in 1951.

Requiring such simple procedures reserved copyright privileges for creators with strong commercial or sentimental interests in limiting the publication of their works. Today, by contrast, copyright automatically applies to every eligible work, including your vacation snapshots and your 4-year-old’s handmade Mother’s Day card.

Under the law when Frost wrote his poem and renewed the copyright on the volume including it, it would have presumably entered the public domain in 1979, more than a decade after its author’s death in 1963. That’s not what happened. Beginning in 1962, Congress gradually extended copyright terms, and in 1976 it passed a new copyright act that gives works already under copyright a new term of 75 years from their first publication. That meant “Stopping by Woods” wouldn’t go into the public domain until 1998.

That’s not what happened either. Just as the poem’s copyright was about to expire, Congress passed the Sonny Bono Copyright Term Extension Act, which gave existing works a new copyright term of 95 years. (The 1923 Frost volume including the poem was one of the works cited in a lawsuit unsuccessfully challenging the act’s constitutionality.) So Frost’s poem won’t enter the public domain until 2018 — assuming that Congress doesn’t pass yet another extension.

Fifty-six years of copyright was clearly enough to encourage Frost to write the poem. Anything further is just a windfall for his estate and his publisher. The Constitution, reformers are quick to note, gave Congress the right to grant copyrights “to promote the Progress of Science and useful Arts,” not to benefit producers.

You can get Copyright Unbalanced which includes excellent papers by Reihan Salam, David Post, Tom Bell and others here (amzn) and read the first chapter (pdf).