Department of provisional Bayesian update

by  Tyler Cowen in

Today I read this:

Although Mr. Obama has not publicly identified which priorities will have to wait, advisers and allies have signaled that they may put off renegotiating the North American Free Trade Agreement, overhauling immigration laws, restricting carbon emissions, raising taxes on the wealthy and allowing gay men and lesbians to serve openly in the military.

Here is the article.  When it comes to health care, the prediction is that we get a "down payment" on future change but not yet the whole reform.

Eight reasons why we are in a depression

by  Tyler Cowen in

1. We have zombie banks.

2. There is considerable regulatory uncertainty in banking and finance.

3. There is a negative wealth effect from lower home and asset prices.

4. There is a big sectoral shift out of real estate, luxury goods, and debt-financed consumption.

5. Some of the automakers are finally meeting their end, or would meet their end without government aid.

6. Fear and uncertainty are high, in part because they should be high and in part because Bush and Paulson spooked everyone.

7. International factors are strongly negative.

8. There is a decline in aggregate demand, resulting from some mix of 1-7.

I have two simple points,  First, a large fiscal stimulus addresses factor #8 but fares poorly in alleviating the other problems.  Of course it may give a band-aid for #5 or #6 and you can tell other stories but we are in a multi-factor depression.

Second, forecasting will prove very difficult.  These factors interacted with each other in a unique manner on the way down and they may well interact in an unpredictable manner on the way back up, whenever that comes.  Just for a start, who has a good model of #1, #2, or #6?  Right now we're seeing a lot of good faith efforts to develop forecasts, but I say don't believe any of them, whether they support your point of view or not.

Satantango

by  Tyler Cowen in

It's seven hours long and probably the greatest Hungarian movie.  I'm about to start the third of three Netflix disks.  One reviewer described it as "desacralized Tarkovsky."  Another summarized the "plot": "Moving at a pace that would suit a glacier, Mr. Tarr [the director] contemplates a
group of grim-faced, wretched characters whose agricultural collective
has fallen into decay, and who engage in desperate forms of chicanery
as a way of denying their failure."  If you love Tarkovsky, Sakurov, and Hou Hsiao Hsien, this is the next step and it does stand in that league.  The Rotten Tomatoes reviews are very good too, noting there is a selection bias in who watches in the first place.  Here is a review from a guy who started off totally unconvinced but was pulled in.  Hardly anyone knows this movie, I can't imagine why.

“Pleonasms are abundant.”

by  Tyler Cowen in

Pleonasms are abundant.  "I done done it" (have done it or did do it).  "Durin' the while."  "In this day and time."  "I thought it would surely, undoubtedly turn cold."  "A small, little bitty hole."  "Jane's a tol'able big, large, fleshy woman."  "I ginerally, usually take a dram mornin's."  "These ridges is might' nigh straight up and down, and, as the feller said, perpendic'lar."

Everywhere in the mountains we hear of biscuit-bread, ham-meat, rifle-gun, rock-clift, ridin'-critter, cow-brute, man-person, women-folks, preacher-man, granny-woman and neighbor-people.  In this category belong the famous double-barreled pronouns: we-all and you-all in Kentucky and you-uns and we-uns in Carolina and Tennessee.  (I have even heard such locution as this: "Let's we-uns all go over to youerunses house.")

That is from the often quite interesting Our Southern Highlanders: A Narrative of Adventure in the Southern Appalachians and a Study of Life Among the Mountaineers, by Horace Kephart, recommended to me by a loyal MR reader.

To think that "cow-brute" is a pleonasm is truly very excellent.  I might add that the discussion of the triple and quadruple and indeed quintuple negative is of interest: "I ain't never seen no men-folks of no kind do no washin'."

Stating the obvious

by  Tyler Cowen in

"We have very few good examples to guide us," said William G. Gale, a senior fellow at the Brookings Institution, the liberal-leaning research organization.  "I don't know of any convincing evidence that what has been proposed is going to be enough."

Here is the article, from today's NYT.  I would reword this slightly, so as to indicate that progrram size alone does not guarantee success.  In fact the larger the stimulus becomes, the fewer good examples we have to guide us.  Aggregate demand macroeconomics does add a great deal of value to our understanding of the economy, but as in all macroeconomic theories the limits to our knowledge are quite severe.

Homeownership should not be subsidized

by  Tyler Cowen in

Home ownership policy of the Bush and Clinton administrations was, in
essence, an attempt to pay low-income people to make a risky investment
that they would otherwise rationally avoid. I cannot understand why
anyone would think that such a policy would be sensible. In some cases,
these people will do well and enjoy the upside of their investment, but
in other cases they will do poorly, with the result that they will be
worse off than ever.

That's Eric Posner.  You'll note that Henry Paulson has been calling for the mortgage agencies to be resurrected as "public utilities" of some sort.  I don't understand this path.  There is a very good (modern) liberal case against more home ownership: behavioral economics is true, people overestimate their prospects, poor people shouldn't take too much risk, and the natural market tendency is too much home ownership, not too little. That's without taking environmental issues into account.

Here is a recent Richmond Fed article, skeptical of the idea of homeownership subsidies.

The Magician’s Book

by  Tyler Cowen in

A recent MR request asked me which book I wished I had written and now I have a recent answer: Laura Miller's The Magician's Book: A Skeptic's Adventures in Narnia.  And I'm not even a big Narnia fan (this review aside).  Most of all this is a book about what it means to love another book and how deep such a love can run.  It also covers the gap between children and adults, how storytelling works, what theology means in art, not to mention it gives an excellent portrait of Tolkien.  Every paragraph of this book offers something of value — how many books can claim that?  Bravo, and again you needn't love or even know much about C.S. Lewis.

I'll buy Laura Miller's next book, sight unseen, no matter what the topic.

Markets in everything, hedonic pricing edition parts I and II

by  Tyler Cowen in

Burger King recently introduced a Facebook app called Whopper Sacrifice that allows users to delete ten of their friends in exchange for a Whopper sandwich. Watch the app in action.

Here is much more and thanks to Alex Sheets for the pointer. It also gives you one way of implicitly valuing what Facebook is worth.  For another recent exchange, get this example, courtesy of Damon Richardson:

First-time vendor Pasang Sherpa said when the
Metropolitan Museum of Art auctioned off the sales rights to two of its
corners, he decided to pay an additional $81,701 to sell his hot dogs
near its north-side entrance, the New York Post said Wednesday.

The cost increase, which represents thousands of hot dogs in
Sherpa's world, was acceptable for the vendor despite only being 100
feet away from the site's south entrance.

"That (north) side is more busy," Sherpa said of his new sales
locale at the tourism site that more than 5 million people visit each
year.

Traffic enforcement makes the roads safer

by  Tyler Cowen in

In case you were wondering, Michael Makowsky and Thomas Stratmann report:

Traffic accidents are one of the leading causes of injury and death in the U.S. The role of traffic law enforcement in the reduction of accidents has been studied by relatively few papers and with mixed results that may be due to a simultaneity problem. Traffic law enforcement may reduce accidents, but police are also likely to be stricter in accident-prone areas. We use municipal budgetary shortfalls as an instrumental variable to identify the effect of traffic citations on traffic safety and show that budgetary shortfalls lead to more frequent issuance of tickets to drivers. Using a panel of municipalities in Massachusetts, we show that increases in the number of tickets written reduce motor vehicle accidents and accident related injuries, and that tickets issued to younger drivers have a larger effect in reducing accidents. The findings show that failure to control for endogeneity results in a significant underestimation of the positive impact of law enforcement on traffic safety.

Here is the paper.

What I’ve been reading

by  Tyler Cowen in

1. The Aztec World, by Elizabeth Brumfiel and Gary Feinman.  Long-time MR readers will know Aztec history is a special interest of mine.  This book, a companion volume to the Aztec exhibit from Chicago’s Field Museum, is perhaps the best introduction to the Aztecs to date.

2. The Suspicions of Mr. Whicher: A Shocking Murder and the Undoing of a Great Victorian Detective. This achieved (justified) rave reviews in the UK but it has hardly made a dent in the U.S. market.  It is non-fiction but written in a hybrid form and often feels more like a novel.

3. The Overflowing Brain: Information Overload and the Limits of Working Memory, by Torkel Klingberg.  When push comes to shove, the author fails to establish his major thesis.  Still, this book is way above average for how seriously it treats the actual science behind its argument.  I learned a great deal from it.

4. Somewhere Towards the End, by Diana Athill.  A scary and effective memoir about how Athill, a famous editor, dealt with aging and the end of her sex life.

5. Not John Steinbeck.

Here are predicted hot reads for 2009. 

Chris Blattman on randomized control trials

by  Tyler Cowen in

As usual, he is wise:

Yes, the randomized evaluation remains the "gold standard" for
important (albeit narrow) questions. Social science, however, has a
much bigger toolbox for a much broader (and often more interesting)
realm of inquiry. If you want to know the effects of small binary
treatments, you are in business. If you find any other question in the
world interesting, you have some more work to do. Dani Rodrik has made
a similar point here.

Don’t
get me wrong: a large number of my projects are randomized control
trials. They are eminently worth pursuing. But to be honest, uncovering
the causes of effects excites me more than measuring the effects of
causes. An evaluation masters the second, but only hints at the first.
The hardest and most rewarding work is the theoretical and
investigative work that comes with uncovering the underlying rhythms
and rules of human behavior.

…If your goal is to improve the delivery of aid, and truly advance
development, many more skills and knowledge are involved than the
randomized evaluation. See here for
more. But in short: a well-identified causal impact that arrives two
years after the program does not performance management make.

Chris also points us toward a new and excellent blog, Obama in Kenya.

Obama at GMU

by  Alex Tabarrok in

President-Elect Obama just spoke at GMU.  I was fortunate to have an invite.  He had a number of good lines including as good a one-line explanation and justification for Keynesian economics as you will find:

Only government can break the cycle that is crippling
our economy, where a lack of spending leads to lost jobs, which leads
to even less spending, where an inability to lend and borrow stops
growth and leads to even less credit.

He emphasized that jobs would be created in the private sector and saved in the public sector.  Nicely put.

His goal is "not to create a slew of new government programs, but a foundation for long-term economic growth."  Very good.

In terms of long-term investment, I was pleased to see him mention the smart grid in particular, an idea I pushed as recently as today.

Overall, my view is that the Obama fiscal stimulus plan is evolving in a sensible direction.  As promised, he is a pragmatist who is listening to a wide variety of well-qualified, centrist economists.

A substantial fraction of the fiscal stimulus is tax cuts, a substantial fraction is preventing state and local funding from plummeting, a modest but reasonable fraction is on maintenance and improvements of old infrastructure (projects that are mostly already on the books), and a modest (but increasing over time) fraction is on longer term projects which are likely to pay off in future returns.

At present, I see very little in the way of Keynesian pyramid building.  Nor do I see an attempt to grab the revolutionary moment by the horns and push the U.S. in a new direction.  Thus, thankfully, No New Deal. There is plenty of uncertainty in the economy but it’s not regime uncertainty.

Addendum:  Do note that I am
evaluating Obama relative to what we can expect given the situation and
our current politics and also relative to say the New Deal.