Year: 2016
John Cochrane on the safe asset shortage
I gave some comments on “Global Imbalances and Currency Wars at the ZLB,” by Ricardo J. Caballero, Emmanuel Farhi, and Pierre-Olivier Gourinchas at the conference, “International Monetary Stability: Past, Present and Future”, Hoover Institution, May 5 2016. My comments are here, the paper is here
The paper is a very clever and detailed model of “Global Imbalances,” “Safe asset shortages” and the zero bound. A country’s inability to “produce safe assets” spills, at the zero bound, across to output fluctuations around the world. I disagree with just about everything, and outline an alternative world view.
A quick overview:
Why are interest rates so low? Pierre-Olivier & Co.: countries can’t “produce safe stores of value”
This is entirely a financial friction. Real investment opportunities are unchanged. Economies can’t “produce” enough pieces of paper. Me: Productivity is low, so marginal product of capital is low.Why is growth so low? Pierre-Olivier: The Zero Lower Bound is a “tipping point.” Above the ZLB, things are fine. Below ZLB, the extra saving from above drives output gaps. It’s all gaps, demand. Me: Productivity is low, interest rates are low, so output and output growth are low.
Data: I Don’t see a big change in dynamics at and before the ZLB. If anything, things are more stable now that central banks are stuck at zero. Too slow, but stable. Gaps and unemployment are down. It’s not “demand” anymore.
Exchange rates. Pierre-Olivier “indeterminacy when at the ZLB” induces extra volatility. Central banks can try to “coordinate expectations.” Me: FTPL gives determinacy, but volatility in exchange rates. There is no big difference at the ZLB.
Safe asset Shortages. Pierre-Olivier: driven by a large mass of infinitely risk averse agents. Risk premia are therefore just as high as in the crisis. Me: Risk premia seem low. And doesn’t everyone complain about “reach for yield” and low risk premia?
Observation. These ingredients are plausible about fall 2008. But that’s nearly 8 years ago! At some point we have to get past financial crisis theory to not-enough-growth theory.
I agree, here is the rest.
Economist Removed from Plane for Algebra
Guido Menzio an economist at the University of Pennsylvania–author of Block Recursive Equilibria for Stochastic Models of Search on the Job among other papers–was pulled from a plane because…algebra is suspicious. From FB:
Unbelievable…
Flight from Philly to Syracuse goes out on the tarmac, ready to take off. The passenger sitting next to me calls the stewardess, passes her a note. The stewardess comes back asks her if she is comfortable taking off, or she is too sick. We wait more. We go back to the gate. The passenger exits. We wait more. The pilot comes to me and asks me out of the plane. There I am met by some FBI looking man-in-black. They ask me about my neighbor. I tell them I noticed nothing strange. They tell me she thought I was a terrorist because I was writing strange things on a pad of paper. I laugh. I bring them back to the plane. I showed them my math.
It’s a bit funny. It’s a bit worrisome. The lady just looked at me, looked at my writing of mysterious formulae, and concluded I was up to no good. Because of that an entire flight was delayed by 1.5 hours.
Trump’s America is already here. It’s not yet in power though. Personally, I will fight back.
Algebra, of course, does have Arabic origins plus math is used to make bombs.
Addendum: here is the Washington Post on the story.
Friday assorted links
1. A new and significantly revised edition of Ilya Somin’s Democracy and Political Ignorance: Why Smaller Government is Smarter, is coming out in June.
2. Philip Wallach: Farewell to the Administrative State?
3. 1970s spoof of Star Wars, done by the Osmonds, ultimately pointing forward to Return of the Jedi.
4. More is more, and the paradox of choice is not robust. Alternatively, just ask Jeff Bezos. I enjoyed this sentence, but it is a bit absurd that it is needed: “”This research suggests that stores should be mindful of offering too few options,” Mochon said.”
5. In 1999 Donald Trump proposed a massive wealth tax on the rich: “The plan I am proposing today does not involve smoke and mirrors, phony numbers, financial gimmicks, or the usual economic chicanery you usually find in Disneyland-on-the-Potomac,” Trump said.
The Schar School of Policy and Government
That is the latest renaming at George Mason University, due to a very generous gift from Dwight Schar in support of public policy and political science. Here is one account, congratulations to my school and its leaders, and of course a very sincere thanks to Dwight…
Obama Joke Becomes Trump Talking Point
President Obama telling what I thought was a joke at the White House Correspondents Dinner:
They say Donald lacks the foreign policy experience to be president. But in fairness, he has spent years meeting with leaders from around the world: Miss Sweden, Miss Argentina, Miss Azerbaijan.
Apparently Donald was listening because yesterday in an interview with Bret Baier he made exactly the same point but this time as argument:
Bret Baier: About Russia, you were asked yesterday if you’ve ever spoken to Vladmir Putin. And you said, “I don’t want to say”:
Donald Trump: Yeah, I have no comment on that. No comment…I was in Russia….I know Russia well. I had a major event in Russia two or three years ago. Miss Universe contest which was a big, big, incredible event. Incredible success. I got to meet a lot of people….
Is Mexico’s soda tax really working?
It is commonly held up as a model of dietary paternalism, but the most recent trends suggest a reversal of sorts:
Coca-Cola Femsa SAB, the country’s largest Coke bottler, said last Wednesday that its Mexican soda volumes rose 5.5% in the first quarter from a year earlier. Arca Continental SAB, the No. 2 Coke bottler, reported soda volumes surged 11%.
The turnaround began last year, when Mexican soda-industry volume rose 0.5% after falling 1.9% in 2014, said data service Canadean.
Consumers also aren’t flocking to untaxed zero-calorie sodas. The market shares of full-calorie Coca-Cola and Pepsi-Cola inched higher last year to 48% and 11%, respectively, according to Euromonitor, another data service.
Antisoda groups aren’t ready to declare the tax a failure and say sales got a boost from unusually warm weather.
And note this:
Even the initial downturn [in soda consumption] only lowered the average Mexican’s daily caloric intake by 6 to 7 calories, or 0.2%, according to the study.
I do not think the correct conclusion is “Mexico’s soda tax is failing,” rather “it can take a very long time to discover whether or not policies are working well.” For instance the tax may be step one in a longer-run beneficial shift in norms, or going the other way the tax may end up as irrelevant or possibly even counterproductive, if individuals end up substituting into something even less healthy. This point about the long run is relevant for assessing the ACA, minimum wage hikes, the euro, various tax cuts, financial regulation, and many many other policies. Relative price effects, secondary consequences, and “chances” of gaming the system are all much higher in the long run than the short.
Are pressures for conformity biased toward the norms of higher income groups?
Only a shred of evidence, but a shred nonetheless:
Kurt Gray, a co-author at the University of North Carolina at Chapel Hill, and his colleagues investigated thousands of shoe purchases made by women who move to different cities, showing that women adopt the local trends when moving to wealthier cities but ignore them when moving to lower socioeconomic (SES) cities.
“In other words, women want to look like the rich girls, and different from the poor girls,” said Gray, an assistant professor of psychology in UNC College of Arts and Sciences.
…Because fashion choices are hard to quantify, they used a straightforward number: the size of high heels [for luxury purchases].
Source here, paper here. Perhaps this eventually becomes a theory of fashion cycles, if the rich women feel, after a while, that too many other women are copying them. By the way, the researchers seem to believe that comparable mechanisms apply to men too, albeit not for high heels necessarily.
For the pointer I thank Charles Klingman and also Samir Varma.
Japan electric car fact of the day
As of earlier this month, there were more than 2,819 CHAdeMO DC rapid chargers installed across the country, far more than the 1,532 installed in the whole of Europe or 854 found in the U.S.
That massive number of accessible, reliable charging stations combined with lower-power level 2 charging provision — both private and public — now means there are more dedicated charging stations in Japan than there are gas stations.
Far more in fact: over 40,000 says Nissan, versus the 34,000 gas stations currently trading in Japan.
Source here. It is fair to say that some fundamental innovation finally is coming to cars.
The social effects of ethnic diversity, a block-level study from France
Yann Algan, Camille Hémet, and David D. Laitin have a piece from the latest JPE, based on what appears to be very good data:
Relying on diversity measures computed at the apartment block level under conditions of exogenous allocation of public housing in France, this paper identifies the effects of ethnic diversity on social relationships and housing quality. Housing Survey data reveal that diversity induces social anomie. Through the channel of anomie, diversity accounts for the inability of residents to sanction others for vandalism and to act collectively to demand proper building maintenance. However, anomie also lowers opportunities for violent confrontations, which are not related to diversity.
A sentence from the conclusion explains that last bit more clearly: “…fractionalization has no effect on public safety, diversity being associated with social anomie within the housing blocks rather than violent confrontations among neighbors — helped as well by an increase in municipal policing in municipalities of high diversity.”
The paper also offers a useful but brief survey of what we know about ethnic diversity and social capital. Here is an earlier ungated copy (pdf).
Driverless cars and robots are ahead of schedule
Here is the latest:
Google is sufficiently confident about its technology that its staff have discussed launching a fully autonomous taxi service in Mountain View as soon as next year, according to people familiar with the company’s thinking. The service may initially be restricted to Google employees, which might get around any legal and regulatory issues. Google has already run some tests with employees who are trained drivers.
I enjoyed this bit too:
Yet real life brings surprises no-one can anticipate. Last year, a Google car rounded a corner to find a woman in an electric wheelchair chasing a duck with a broom in the middle of the road. “We’d never tested the car against a woman and a duck,” Mr Urmson says, “and it was able to understand this was unusual, slow down, let that thing play out and then get on its way.”
Here is the Tim Bradshaw FT piece, and for the pointer I thank Michael Gibson. And Ted Craig sends me this:
General Motors Co. and Lyft Inc. will begin testing a fleet of self-driving Chevrolet Bolt electric taxis on public roads within a year, a move central to the companies’ joint efforts to challenge Silicon Valley giants in the battle to reshape the auto industry.
And here is Viv, which is supposed to be better than Siri. And here:
A robot is being designed to compete with 12th graders during the college entrance examination in 2017 and get a score qualifying it to enter first-class universities in China, according to Huaxi Metropolis Daily.
The robot will not be connected to the internet. And from the world of photography, here are robot portraits. And yet more from the FT:
US researchers have developed what they say is the world’s first surgical robot that can outperform human surgeons when operating autonomously on soft tissues such as intestines, paving the way for clinical trials.
Airbus is working with French and Japanese researchers to develop humanoid robots able to work alongside humans on its assembly lines and inside aircraft, in what would be a step change in the use of industrial robotics.
That is a lot of robot news for a day and a half.
Thursday assorted links
1. “For nearly 40 years he played host every May to a carriage parade from his house to the annual steeplechase races in Winterthur, the former du Pont estate in Delaware, followed by a celebration and pig roast at Chadds Ford…A bon vivant and a character, Mr. Weymouth was a toff of the old school, with a global network of friends in high places. He rarely turned on a television, in part because he never mastered a remote control, or light switches, for that matter. He preferred candlelight. Computers he regarded as an abomination.” NYT obituary here.
2. “You cannot talk about aggregate productivity growth without talking about both technology and the distribution of workers across sectors. Anecdotes – positive or negative – about individual technologies are not informative about the aggregate level of productivity growth.” Link here.
3. “Have you tried turning it off and on again?” That too, can be automated.
4. Interview with Jessa Crispin. And why is it hard to pick up Singlish?
6. FT Alphaville: “…we tend to think, if anything, endowments at the biggest schools are actually far too small, rather than too large.”
7. An actual case of cement shoes (NYT). And Stadt Zug will accept Bitcoin for small sums (in German).
Etymology lesson
trump (v.2)
“fabricate, devise,” 1690s, from trump “deceive, cheat” (1510s), from Middle English trumpen (late 14c.), from Old French tromper “to deceive,” of uncertain origin. Apparently from se tromper de “to mock,” from Old French tromper “to blow a trumpet.” Brachet explains this as “to play the horn, alluding to quacks and mountebanks, who attracted the public by blowing a horn, and then cheated them into buying ….” The Hindley Old French dictionary has baillier la trompe “blow the trumpet” as “act the fool,” and Donkin connects it rather to trombe “waterspout,” on the notion of turning (someone) around. Connection with triumph also has been proposed. Related: Trumped; trumping. Trumped up “false, concocted” first recorded 1728.
Here is more, via DK. Here are related comments from Scott Sumner.
They promised us 140 characters, and all we got was this glittering dress…
Who needs a flying car?
Kurkova donned the first “cognitive” dress to be worn at the Met Gala. Embedded with LED lights, the dress changed colors in real time based on Twitter users’ reactions to the night.
Here is more, via the excellent Samir Varma.
Wednesday assorted links
Growth of income and welfare in the U.S, 1979-2011
This new NBER paper by John Komlos is of real interest, and it documents the “average is over” idea of the dwindling of middle class fortunes:
We estimate growth rates of real incomes in the U.S. by quintiles using the Congressional Budget Office’s (CBO) post-tax, post-transfer data as basis for the period 1979-2011. We improve upon them by including only the present value of earnings that will accrue in retirement and excluding items included in the CBO income estimates such as “corporate taxes borne by labor” that do not increase either current purchasing power or utility. We estimate a high and a low growth rate using two price indexes, the CPI and the Personal Consumption Expenditure index. The major consistent findings include what in the colloquial is referred to as the “hollowing out” of the middle class. According to these estimates, the income of the middle class 2nd and 3rd quintiles increased at a rate of between 0.1% and 0.7% per annum, i.e., barely distinguishable from zero. Even that meager rate was achieved only through substantial transfer payments. In contrast, the income of the top 1% grew at an astronomical rate of between 3.4% and 3.9% per annum during the 32-year period, reaching an average annual value of $918,000, up from $281,000 in 1979 (in 2011 dollars). Hence, the post-tax, post-transfer income of the 1% relative to the 1st quintile increased from a factor of 21 in 1979 to a factor of 51 in 2011. However, income of no other group increased substantially relative to that of the lowest quintile. Oddly, the income of even those in the 96-99 percentiles increased only from a multiple of 8.1 to a multiple of 11.3. We next estimate growth in welfare assuming diminishing marginal utility of income. A logarithmic utility function yields a growth in welfare for the middle class of roughly 0.01% to 0.07% per annum, which is indistinguishable from zero. With interdependent utility functions only the welfare of the 5th quintile experienced meaningful growth while those of the first four quintiles tend to be either negligible or even negative.