Month: December 2014
Where to eat? Probably you can forget the rest, unless you ought to rationally think I do not already know of it.
1. “Only 11 of 64 games in the TCEC final were decisive, and all of them were won by White.” Uh-oh. How far are chess-playing computers from perfection? Ken Regan on AI across different games.
6. Matt Yglesias predictions for 2015. Arnold Kling predictions, I agree about terrorism by the way. And what Joshua M. Brown and others learned in 2014, recommended, “a woman’s “be ready in 5 minutes” and a man’s “be home in 5 minutes” are about the same.”
Here is my annual rundown of the top MR posts of 2014 as measured by page views, tweets and shares.
1. Ferguson and the Debtor’s Prison–I’d been tracking the issue of predatory fining since my post on debtor’s prisons in 2012 so when the larger background of Ferguson came to light I was able to provide a new take on a timely topic, the blogging sweet spot.
2. Tyler’s post on Tirole’s win of the Nobel prize offered an authoritative overview of Tirole’s work just when people wanted it. Tyler’s summary, “many of his papers show “it’s complicated,” became the consensus.
3. Why I am not Persuaded by Thomas Piketty’s Argument, Tyler’s post which links to his longer review of the most talked about economics book of the year. Other Piketty posts were also highly linked including Tyler’s discussion of Rognlie and Piketty and my two posts, Piketty v. Solow and The Piketty Bubble?. Less linked but one of my personal favorites was Two Surefire Solutions to Inequality.
4. Tesla versus the Rent Seekers–a review of franchise theory applied to the timely issue of regulatory restrictions on Tesla, plus good guys and bad guys!
5. How much have whites benefited from slavery and its legacy–an excellent post from Tyler full of meaty economics and its consequences. Much to think about in this post. Read it (again).
7. The SAT, Test Prep, Income and Race–some facts about SAT Test Prep that run contrary to conventional wisdom.
8. Average Stock Returns Aren’t Average–“Lady luck is a bitch, she takes from the many and gives to the few. Here is the histogram of payoffs.”
9. Tyler’s picks for Best non fiction books of 2014.
10. A simple rule for making every restaurant meal better. Tyler’s post. Disputed but clearly correct.
Some other 2014 posts worth revisiting; Tyler on Modeling Vladimir Putin, What should a Bayesian infer from the Antikythera Mechanism?, and network neutrality and me on Inequality and Masters of Money.
Many posts from previous years continue to attract attention including my post from 2012, Firefighters don’t fight fires, which some newspapers covered again this year and Tyler’s 2013 post How and why Bitcoin will plummet in price which certainly hasn’t been falsified!
Everyone is up in arms over the list supplied by The Economist. I won’t go through those debates. Let me just note that for all the talk of wonk this, data that, and Generalized Method of Moments this that and the other, every now and then the best algorithm is simply Asking Tyler Cowen. So here are, in no particular order, the most influential economists circa 2014:
1. Thomas Piketty
2. Paul Krugman
3. Joseph Stiglitz
4. Jeffrey Sachs
5. Amartya Sen
Basta. Of course Yellen and Draghi are extremely influential as central bankers, but in the way Paul Volcker was, so that is a different list, albeit a more important one.
I would add several comments:
a. Piketty does very very well for marginal impact in 2014, but probably would/will do less well over broader time spans, even if you think his work will hold up.
b. Krugman is a clear winner for the United States.
c. Stiglitz, Sachs, and Sen have most of their influence outside of the United States.
d. Larry Summers is influential among economists and the intelligentsia and is one possible choice for number six, with Dani Rodrik as another, or maybe drum up the leading Islamic theorist on sukuk. But Summers is not so influential with casual observers, which in some ways puts him as the opposite of Stiglitz (in his current incarnation).
e. There is no right-wing or center-right economist on the list. See the EJW symposium on why there is no Milton Friedman today. Krugman is probably the most politically conservative figure among the top five.
f. Behavioral economics as a whole is quite influential, but with no single dominant figure of influence. In actuality Cass Sunstein (not formally an economist) and Richard Thaler might globally be #1 in the behavioral area, followed by Daniel Kahneman.
Yes, they are clearly going to have a recession, and probably a pretty bad one. But, oil prices may well be near their bottom. Russia has a lot of foreign exchange and little sovereign debt and is running a current account surplus, ironically reinforced by western sanctions. Yes, much of the private sector will face refi problems that could still blow up, and that would be the most likely mechanism for a severe collapse worse that Putin and others are forecasting. But, as of now, Putin’s popularity rating has reached an all time high after his latest press conference, 85% approval. You of all people should understand that he has successfully prepared the Russian people for bad times ahead by convincing them that they are in some replay of The Great Patriotic War and the Cold War combined, phoney baloney as that appears to us outsiders. The chances are in fact pretty good that they will tough it out without a major collapse, and the public will be willing to accept the likely privations that will arise due to the impending stagflation.
2. ‘Be relentless in your questioning about the hardware. Astronaut selection is the least of their worries.’ There is more here: “Yet she would be willing to leave her husband behind should a Mars passport bear her name.”
7. Japan photo essay by Legal Nomads. She is one of the people I envy.
A simple theory of IPOs suggests that they arrive when a product or company is experiencing “peak buzz,” or at least when the insiders in the privately held company think they are at or near peak buzz. This will maximize the expected returns on the IPO when it comes to market.
When it comes to food, peak buzz usually arrives a wee bit after peak quality, given reputational lags. So if you are seeing peak buzz, it is probably time to bail on the restaurant, at least on a restaurant which is going to be sold. Bailing on the restaurant may in fact be slightly overdue.
After an IPO, the equity share of the original creators — in this case Danny Meyer — is diluted. Meyer’s incentive to maintain quality standards and his personal brand name is weakened. The subsequent public shareholders are more likely to insist on a less risky and more mass market approach, which is not in tune with what you, highly intelligent reader of this blog, are likely to prefer.
In other words, both the signaling and the moral hazard arguments suggest that soon you should stop eating at Shake Shack. Alternatively, perhaps you should now go lots of times, in quick succession, given that quality will decline even more and you must stock up on your fix as a kind of intertemporal substitution.
By now I’ve bought and heard most of the top CDs recommended by sources such as Pitchfork and Spin, and overall I find them to be a well executed but fairly uninspired group of recordings. (Best of all, try the Ben Southwood music aggregator.) What I really enjoyed this year was:
1. Aphex Twin, Syro. Especially impressive after such a long hiatus because his later recordings were not always first-rate.
2. D’Angelo and the Vanguard, Black Messiah. Self-recommending.
3. Calypso Craze, 1956-57 and Beyond. From the Bear label, this is by an order of magnitude the best Calypso compilation ever. Seven CDs, and you don’t need to buy any more Calypso again. You’ll also learn how much influence Calypso has had on subsequent popular music, including Chuck Berry (“Havana Moon“), Harry Nilsson, and a good deal of rap, among others.
I’ll listen to some Swans in the year to come.
…a new complaint is about Kindle Unlimited, a new Amazon subscription service that offers access to 700,000 books — both self-published and traditionally published — for $9.99 a month.
It may bring in readers, but the writers say they earn less.
Here is some analysis:
“Your rabid romance reader who was buying $100 worth of books a week and funneling $5,200 into Amazon per year is now generating less than $120 a year,” she said. “The revenue is just lost. That doesn’t work well for Amazon or the writers.”
Amazon, though, may be willing to forgo some income in the short term to create a service that draws readers in and encourages them to buy other items. The books, in that sense, are loss leaders, although the writers take the loss, not Amazon.
And when it comes to food?:
New research shows that paying that much for a buffet might actually make the food taste better. Three researchers did an all you can eat (AYCE) buffet field experiment to test whether the cost of an AYCE buffet affected how much diners enjoyed it. They conducted their research at an Italian AYCE buffet in New York, and over the course of two weeks 139 participants were either offered a flier for $8 buffet or a $4 buffet (both had the same food). Those who paid $8 rated the pizza 11 percent tastier than those who paid $4. Moreover, the latter group suffered from greater diminishing returns—each additional slice of pizza tasted worse than that of the $8 group.
“People set their expectation of taste partially based on the price—and it becomes a self-fulfilling prophecy. If I didn’t pay much it can’t be that good. Moreover, each slice is worse than the last. People really ended up regretting choosing the buffet when it was cheap,” said David Just, professor at Cornell’s Dyson School of Applied Economics and Management, and one of the study’s authors.
In the old days one heard speculation about bundling a great number of newspapers and blogs into a single-price access model, but in retrospect this probably never had much financial potential, for reasons which by now should be clear. What would an “all-you-can-eat buffet for economists” mean? And who if anyone would benefit from it?
The author is Barry Eichengreen and the subtitle is The Great Depression, The Great Recession, and the Uses — and Misuses — of History. My copy has now arrived.
In a New Keynesian model temporarily stuck at the Zero Lower Bound with less than potential output, a “temporary” increase in Government spending will increase output, but a “permanent” increase in G will have no effect. But “temporary” has a very precise meaning here. It does not mean what a normal person might think it means. If people expect any delay, however short, in cutting G after the economy escapes the ZLB and returns to potential output, the increase in G might as well be permanent. It will have no effect on output at the ZLB.
That is from Nick Rowe, who writes a good post on the topic. Nick’s post brings out my inner Arnold Kling, as I think these models are on the wrong track altogether. If you are going to live in these models, however, Nick poses a clincher:
Now ask yourself a second question: which would be easier: getting people to expect there will be zero lag in cutting G; or getting people to expect a permanent increase in M? (Where “permanent” means “lasting longer than the ZLB”.)
This may shock those who inhabit the economics blogosphere, but even in a demand-side model the most important question about fiscal policy is probably how well the money is being spent.
1. Argentina’s President Kirchner adopts Jewish godson to prevent him from being turned into a werewolf. Before 2009, this privilege was restricted to Catholics only.
Kevin Drum offers some commentary on my take on the uncertainties of 2015. But keep in mind, by focusing on uncertainties the inquiry has an intrinsic pessimistic bias. Lots of good things will happen in 2015 too, it’s just that they aren’t very uncertain. Catch-up growth will continue in most nations, even if at slower rates in many cases. Medical progress will lumber along. Poverty will diminish. Poems will be read and utils will sparkle in people’s brains. A number of good books will be produced and you will be able to read about some of them right here on MR. Washington, D.C. will continue to become an interesting city. More and more people will experience the joys of parenthood. Indeed there is quite a good chance 2015 will be one of the best years the world ever has seen!
But again, the uncertainties of 2015…those are mostly going to be negative.
Economists have also estimated that Morocco’s occupation of Western Sahara, unrecognised by the UN, has cost the country up to 10 per cent of GDP annually. Rabat subsidies the impoverished territory’s economy and the occupation also contributes to its outsized defence budget of 5.1 per cent of GDP.
There is more here, on how the Moroccan economy nonetheless may be poised for sustained growth.
Justin Wolfers considers that topic here. I don’t disagree with his points, but I’ll offer a separate (but somewhat overlapping) set of picks:
1. The major economic and indeed geopolitical question of 2015 will be whether the Russian economy can manage a graceful decline. I’ll say no, they can’t, but it is hard to see what lies around the corner or even to outline scenarios.
2. U.S. gdp is now growing at a five percent clip. Will that finally translate into significant real wage growth? Again, I’ll say no, see this recent piece by Barry Bosworth. Either way, this question will shape our entire future looking forward.
3. Can India continue and indeed extend its recent momentum? They are one of the bright spots in the global economy right now, in terms of rates of growth that is. I say yes they can, they “enjoy” the odd liberty of not having been very successful exporting in the past and thus they have a relatively insulated position where they can rely on internally generated catch-up growth.
4. Will Canada and Australia turn out to have been bubbles of a kind, due to falling resource prices? Will the global economy enter a new forty year period where Julian Simon is right once again about resource prices? I say the word “bubble” is misleading here, but they will see a further growth slowdown in 2015 in those two nations.
5. Will anyone still be pretending that Abenomics has a chance of succeeding? I say no, not really.
6. Will Greece vote itself out of the eurozone? (Technically speaking, that could start in very late 2014). I say yes.
7. How slowly/rapidly will the Chinese government allow the growth rate to fall? How much excess capacity will be wracked up in the meantime? Does there exist a scenario in which the growth rate decline is so slow that the excess capacity can be worked off in a relatively orderly manner? I say no.
8. Will Brazil and Mexico turn around the fading economic fortunes of Latin America? I say no, not this coming year at least. Not next year either.
9. Will the economies of Italy and France continue to fester? I say sadly so. The risk is that Germany joins them.
What are the “unknown unknowns”? (Can that concept still make sense these days, with so much on-line commentary?) North Korea was always one, but it can’t fit into the total surprise slot any more. In any case, the Sony hack and its aftermath will continue to be a big story. What else might count as speculative guesses? (NB: not all of these are maximum likelihood estimates, rather they are undervalued possibilities.) U.S. equities could turn out to be a bubble, even with continuing superior American economic performance. So we may have a 1987-style crash. The traditional relationships between macro variables such as currencies, interest rates, growth rates, stock prices and the like will not hold up. No one’s macro theory will look very good (now that’s a daring prediction). Each year the chance of a nuclear weapon going off is larger than we think. Maybe not in 2015, but the chance of France having another “constitutional revision”/peaceful revolution is larger than most people realize. Private space travel will prove ever more dangerous. Avian flu will reemerge. The Supreme Court will rule against the current version of Obamacare subsidies. Haiti will reenter political chaos. An American terrorist will operate in the Middle East and pull off one surprise attack, not huge in terms of casualties but it will create a lot of attention. The new Star Wars movie will be good.