Brad DeLong on IS-LM
You can read his defense of the model here, though I would not do the google with the word “perspective” in it.
The Alchian-Allen theorem on the Mexican border
“There’s less traffic, but traffic that’s there is more threatening,” Mr. Jimarez, the border agent, said.
There is much more here. Note that the relevant marginal border restrictions, these days, are coming from crime and gangs on the Mexican side, not from American policy.
Assorted links
1. Scott Sumner, again on the mark.
2. Jack Goldstone on Bob Frank, Darwin, and Smith.
3. Is the health care cost explosion slowing down?
4. Some evidence.
5. Peter Thiel on stagnation, excellent piece.
Is New York getting safer?
New York is America’s safest large city, the city that saw crime fall the most and the fastest during the 1990s and the early part of this decade. Yet New York’s murder rate is 80 percent higher now than it was at the beginning of the twentieth century — notwithstanding an imprisonment rate four times higher now than then. That crime gap is misleadingly small; thanks to advances in emergency medicine, a large fraction of those early twentieth-century homicide victims would survive their wounds today. Taking account of medical advances, New York is probably not twice as violent as a century ago, but several times more violent. At best, the crime drop must be counted a pyrrhic victory.
That is from The Collapse of American Criminal Justice, by William J. Stuntz, hat tip to Chug Roberts.
Google and the Power of Positive Feedback
Just about everything Google does allows Google to do just about everything it does better. Here’s an example:
By 2007, Google knew enough about the structure of queries to be able to release a US-only directory inquiry service called GOOG-411. You dialled 1-800-4664-411 and spoke your question to the robot operator, which parsed it and spoke you back the top eight results, while offering to connect your call. It was free, nifty and widely used, especially because – unprecedentedly for a company that had never spent much on marketing – Google chose to promote it on billboards across California and New York State. People thought it was weird that Google was paying to advertise a product it couldn’t possibly make money from, but by then Google had become known for doing weird and pleasing things.
…What was it getting with GOOG-411? It soon became clear that what it was getting were demands for pizza spoken in every accent in the continental United States, along with questions about plumbers in Detroit and countless variations on the pronunciations of ‘Schenectady’, ‘Okefenokee’ and ‘Boca Raton’. GOOG-411, a Google researcher later wrote, was a phoneme-gathering operation, a way of improving voice recognition technology through massive data collection.
Three years later, the service was dropped, but by then Google had launched its Android operating system and had released into the wild an improved search-by-voice service that didn’t require a phone call. You tapped the little microphone icon on your phone’s screen – it was later extended to Blackberries and iPhones – and your speech was transmitted via the mobile internet to Google servers, where it was interpreted using the advanced techniques the GOOG-411 exercise had enabled. The baby had learned to talk.
…If, however, Google is able to deploy its newly capable voice recognition system to transcribe the spoken words in the two days’ worth of video uploaded to YouTube every minute, there would be an explosion in the amount of searchable material. Since there’s no reason Google can’t do it, it will.A thought experiment: if Google launched satellites into orbit it could record all terrestrial broadcasts and transcribe those too. That may sound exorbitant, but it’s not obviously crazier than some of the ideas that Google’s founders have dreamed up and found a way of implementing: the idea of photographing all the world’s streets, of scanning all the world’s books, of building cars that drive themselves. It’s the sort of thing that crosses Google’s mind.
More of interest.
Why I do not like the IS-LM model
1. It fudges the distinction between real and nominal interest rates, so it can put the two curves on the same graph. Every time you write down an IS-LM model you should hear a clock start ticking in your head. The longer the clock ticks, you more you need to worry about this problem because the more that a) the price level may change, or b) expectations about future price level changes will start to matter.
2. It fudges the distinction between short-term interest rates (for the money market curve) and long-term interest rates (a determinant of investment). They’re not the same! Don’t assume they are the same, just to squash the two curves onto the same graph.
3. It leads you to think that the distinction between non-interest bearing currency and short-term interest-bearing securities is a critical wedge for the economy. It also implies that if all currency paid interest (a minor change, most likely, macroeconomically speaking), the economy would behave in a totally screwy way. It probably wouldn’t.
3b. The model leads you to believe that interest rates are more important than they probably are.
3c. For a while it treats “money” as the non-interest-bearing security, and then for a while it treats money as the transactions media behind AD, something closer to M2.
4. It overemphasizes flows and under-emphasizes stocks of wealth. The quantity theory approach, as wielded by Fisher and Friedman, does not induce individuals to make this same judgment. For one thing, this distinction really matters when you’re trying to predict the macro effects of “window breaking.” The flows perspective will usually be more optimistic than a perspective which recognizes both stocks and flows.
5. Those aggregate curves are not invariant with respect to expectations, including expectations of government policy. You don’t have to believe in an extreme version of the Lucas critique to worry about this one. Those curves are conditional and the ceteris paribus assumption is not to be taken lightly here.
6. In the LM curve, what is the embedded reaction function of the Fed? Good luck with that one. Pondering this issue leads you to conclude that the whole model was written for an economy fundamentally different than ours.
7. The most important points, for instance about the significance of AD, one can derive from a quantity theory or nominal gdp perspective (for the latter, see my Principles text with Alex).
Why take on all that extra baggage?
Here is why Scott Sumner does not like IS-LM. After writing this post, I remember I had an earlier 2005 post on why I do not like IS-LM; I didn’t like it back then either.
Addendum: For a few sources, here is Roubini on IS-LM. Here is Wikipedia.
A sad story in the history of Italian justice, it seems
I was passing by the Perugian courthouse when they announced the acquittal of Amanda Knox, and the reaction of the crowd was not completely exemplary. It seems they wanted her to be guilty, even though the supposed proof of her guilt was far from satisfactory. I, for one, am happy to see her freed:
Knox seems determined to use prison as a comparative-literature graduate program. She continues to study Italian (which she now speaks fluently, with occasional sallies into jailhouse vernacular), reading textbooks from cover to cover three times each. She has also become proficient in German and French, and is studying Japanese, Chinese and Russian. She is devouring the Western canon, and lists in her journals each book she completes. She has become something of a specialist in Existentialism (Nietzsche’s Beyond Good and Evil, Sartre’s No Exit and Nausea), Magical Realism (Calvino, Borges, Eco), Absurdism and Despair (Vonnegut, Beckett, Woody Allen, Kafka).
One story on the original trial is here.
Assorted links
Who first called gold a barbarous relic?
Barry Popik, who by the way was a childhood chess friend of mine, reports:
Although Keynes is credited with calling the gold standard a “barbarous relic,” many other people had written similar terms (“gold is a relic of barbarism”) well before 1923. John Austin Stevens wrote to the New York (NY) Times in October 1873, stating that “gold is a relic of barbarism to be tabooed by all civilized nations.” Tennessee merchant John T. Goss testified before the U.S. Senate in 1894, saying that “Gold is a relic of barbarism and should be discarded by all civilized nations as a medium of exchange.” The book Civilized Money (1895), by Charles M. Howell, also declared that “gold is a relic of barbarism.” In December 1921, Thomas Edison said that “”Gold is a relic of Julius Caesar and interest is an invention of Satan.”
Barry’s impressive etymology page is here.
Very good sentences
A grizzled NASA veteran once told me that the Apollo Moon landings were communism’s greatest achievement.
That is from Neil Stephenson. The entire essay is worth reading.
By the way, I read a bit of Reamde. It is well crafted, unlike most of Stephenson’s work, but also seemed devoid of interest, also unlike most of Stephenson’s work.
Markets in everything
The entries in this series are still capable of surprising me:
A pair of Alabama conservation enforcement officers think they’ve come up with the perfect way for avid hunters to honor their loved ones for eternity.
Officers Thad Holmes and Clem Parnell [TC: great names] have launched Holy Smoke LLC, a company that will, for a price, load cremated human ash into shotgun shells, and rifle and pistol cartridges.
It’s the perfect life celebration for someone who loves the outdoors or shooting sports, Parnell says.
And to put your mind at ease:
The animal should be killed quickly by the shot, to prevent any possibility of spreading the ashes in the animal’s blood, he says. The area around where the animal was struck should not be consumed.
The article is here, the company’s web site is here, and I thank J. for the pointer.
Why Do Sandwiches Taste Better When Someone Else Makes Them?
Daniel Kahneman tells us:
When you make your own sandwich, you anticipate its taste as you’re working on it. And when you think of a particular food for a while, you become less hungry for it later. Researchers at Carnegie Mellon University, for example, found that imagining eating M&Ms makes you eat fewer of them. It’s a kind of specific satiation, just as most people find room for dessert when they couldn’t have another bite of their steak. The sandwich that another person prepares is not “preconsumed” in the same way.
Assorted links
1. Origins of the term “Great Stagnation”; was it Lester Thurow?
2. Deposits in Irish banks rise for the first time in a year.
3. Is there too much default correlation for EFSF leverage to work?
4. Smith on Caplan on single mothers; “Baby lust is quite real, almost certainly genetically determined and probably explains a fair fraction of the differences in outcome among women.”
5. The Japanese electricity forecast from the culture of the Swiss in Japan.
Can you eat decently at an indecent restaurant?
I have a short piece in the NYT Sunday magazine on that question, here is one excerpt:
Moisture is a key element to consider. Eggs, traditionally deemed a safe choice in diners, are easy to overcook and thus are often served dry and tasteless. Chili and other slow-simmering dishes are a better option, because they can be left on the stove forever and still taste O.K. The initial recipe may not be optimal, but the restaurant’s mistakes probably won’t make them worse, and the spices in a good blend can overcome mediocre ingredients. Ribs, which are usually cooked mechanically with little threat of human error, can also sit for a long time at low heat and will almost certainly taste better than they look. At an Italian restaurant, spaghetti is a safer choice than lasagna, since a lot of the moisture is added ex post, through the sauce, making it harder to dry it out.
Sentences to ponder
The rise in the cost of CDS on Morgan Stanley has outpaced that of other US banks and it now costs more to insure Morgan Stanley debt than the debt of Bank of America.
Here is more.