Fessing up to previously incorrect beliefs
Brad DeLong offers a list:
In my belief that central banks had the tools, the skill, and the political will to stabilize economies at high levels of employment and low levels of inflation, and thus that fiscal policy and financial institutions policy no longer had any compelling stabilization policy role to play.
In my belief that large, leveraged financial institutions had sufficient caution and sufficient control over their derivatives books that their derivative positions did not pose major systemic risk.
In my belief that the principal threat to the world economy would come from the fact that in a crisis the shaky long-term finances of the U.S. social insurance state might provoke a collapse of confidence in the long-term value of the dollar.
I shared in one and two, though not three. I'm starting to believe in #3 however.
(That said, I would word #1 differently; for instance, I have long believed in automatic stabilizers and still do and I remain more skeptical of "ramp-up" spending than Brad. I would phrase #2 to focus on the balance sheet more generally and not derivatives per se.)
I also take the data on slow median income growth more seriously than I used to. I no longer think those numbers are a mere statistical artifact.
What can you all cite as changed beliefs? Examples like "Person X or Policy X turned out to be even worse than I had thought" do not count.
Addendum: Megan McArdle adds her list, mine could be longer too!
Assorted links
1. China car story of the day.
2. David Brooks on the Germans.
3. Very good post on whether ex post compensation can help much with climate change.
4. Mexico drug gang hiring pretty hitwomen.
5. Bang ye, or "exposing grandfathers."
Markets in Everything: Subliminal Statistical Physics
The Superior Statistical Physics subliminal CD is designed to super charge your brain to learn statistical physics faster and easier than ever imagined. It will help you learn and master statistical physics so that you retain the material longer, understand it better, and enjoy it much more than you normally would. This session can help you pass statistical physics exams easier and with higher scores. All you have to do is continue the same statistical physics classes or text that youre studying now and listen to this CD to accelerate your learning ability.
Just in case you were wondering, "It does not actually teach statistical physics…"
And if you like that you can also subliminally learn paleontology, seismology, parliamentary procedure and, of course, monetary theory–this last makes me think of Scott Sumner whispering silently as Ben Bernanke goes to sleep, "you must increase NGDP, NGDP, NGDP."
Would more planned savings be good? How can we lower perceived risk premia?
One common claim these days can be put in terms of the expectations theory of the term structure: since short-term rates cannot much fall, long-term rates cannot much fall either.
Yet I would not put this argument forward as the best available understanding of the issue. First, the expectations theory of the term structure has a dubious empirical record. Long and short rates change for somewhat mysterious reasons and the long rates do not forecast future short rates very well. Second, there is a distinction between Treasury and corporate rates and the latter are not zero, especially for small businesses.
One possibility is that true corporate real rates are better reflected by the status of letters of credit, standby loan agreements, and the like. One can view borrowing in terms of the value of an option, rather than a single numerical rate. Many businesses no longer feel they have lots of liquidity "on tap" when they might need it from their banks and so they hesitate.
In general, I think of this crisis as having damaged a lot of agency relationships, and as having led to tighter leashes. For instance, if you are a worker of um…"ambiguous" marginal product you may no longer get the benefit of the doubt. The high perceived risk premium in the labor market is preventing a lot of reemployment.
Returning to interest rates, the question is what could call true real rates to fall. The expectations theory of the term structure is not very useful in analyzing this problem. Changes in the perceived risk premium have been an embarassment and a confounding factor for the expectations theory for a long time.
Given that background, should we plan to save more? On the no side, I would not push "more savings" is the magical elixir in lowering real rates, since the major issue is again the perceived risk premium.
(By the way, if we lower real rates through Sumneresque inflation — which I favor — we are altering the spectrum of these agency dealings and injecting more risk into those relationships, possibly in a socially optimal manner; in any case that second-order effect has not seen enough analysis.)
Another anti-savings argument runs like this: if we switch from spending to savings, that requires longer-term production processes and resource reallocations. The new market forecasts of what to produce involve greater risk, namely Keynes's "dark forces of time and ignorance". If that increase in the risk is too stiff, an increase in planned savings could lead to a greater collapse in output, exacerbating both AD and AS problems.
A pro-savings argument runs like this: We're overly dependent on Chinese capital. T-Bill auctions are now being soaked up much more by domestic lenders and that is a good thing for the world state where the Chinese economy implodes.
Another pro-savings argument is about balance sheet repair and about satisfying the preferences of consumers for greater long-term risk protection.
A major pro-savings argument is: If savings are not to go up now (and they have been rising since the onset of the crisis, supposed Keynesian paradoxes aside), then when?
The long-run boundary conditions require Americans to save more at some point and here's a fundamental point about macro. I believe we are in a situation where the short-run and long-term boundary conditions are interacting. People want to see the longer-term "we have to save more" problem (as well as some other longer-term problems) partially resolved before having much lower shorter-term risk premia and thus a freer flow of capital and private investment and also more ambitious hiring policies.
That makes the ride especially bumpy and the recovery especially slow. Both the long-run and short-run conditions require partial resolution, at the same time, and yet the long- and short-run conditions point in some different directions.
I get nervous when I see Keynesian models emphasizing the short-term only or non-Keynesian approaches emphasizing the long-term only. The more insightful approaches see the short-term and long-term factors interacting in a not always so helpful manner.
Addendum: Krugman has a recent post on savings. I am confused by his insertion of the Fed into the classical loanable funds mechanism, which does not require a central bank. I am also surprised that he associates the paradox of saving with the liquidity trap; Keynes for instance believed in the paradox of saving even though he thought he had never seen a liquidity trap. It could be, however, that I am misreading him on both counts; I found the post difficult to parse.
Central American sour cream stand-off, Markets in everything
Following a perceptive query from Kevin Drum, I bought and sampled sour creams from El Salvador, Honduras, Guatemala, and Mexico, all from my local Mundo Latino supermarket.
The Honduran cream had a taste and consistency somewhat like that of the El Salvadoran cream. Yet the cream from El Salvador was sweeter in a nice way; this came more to the fore when each cream was combined with a tamale. The Guatemalan cream tasted noticably worse than either — flatter, heavier, and less tart/tangy. Its label indicated it had a much higher level of saturated fat and cholesterol.
The Mexican cream was different altogether. One Kevin Drum reader commented:
Mexican crema is yellowish and buttery. Salvadoran is whiter and tangier. American is lighter, firmer and more yogurty.
Of the creams from El Salvador, the best ones are in the small plastic bags, not the plastic containers. If you have the feeling you don't know how to store the thing once you open it, that's the one you should buy.
Those are the supermarket brands. The very best sour cream I've had was in Nicaragua, where the poverty and underdevelopment have kept the food supply chain shorter and fresher, albeit at the cost of higher food prices relative to real wages. San Salvador has much more fast food than does Managua, for instance. But they don't have mass produced Nicaraguan sour cream in my local supermarket, perhaps because relatively few Nicaraguans live in northern Virginia.
Here is comment from a retailer who appreciates the diversity of the creams.
Assorted links
1. Quiz: "fertility drops by a factor of two" — across which North American border?
2. Andrew Gelman thinks I am cynical, yet I stand by my position (which he represents fairly).
3. How well is Estonia recovering?
4. How to fight corruption in Afghanistan, guaranteed to work.
5. Income inequality and the crisis?
6. It's about time I linked to Zombie ants.
The Chilean mine diet
The miners have lost about 10kg each after having survived on half a glass of milk and two mouthfuls of canned tuna every 48 hours until supplies ran out. They have been told to watch their weight so they will be able to squeeze through the narrow escape shaft that is being drilled, and given tape measures to ensure they keep their waists below 90cm.
The article is here; they are also being sent "games"; I wonder which ones? There are many articles (Sp.) about the miners receiving solidarity from Chilean soccer players and institutions. A formerly trapped Australian miner recommends that the trapped Chilean miners keep "a good sense of humor." Right now they are gradually increasing their rations of cereal and hard-boiled eggs.
A very good point from Dan Drezner
Quiggin thinks he’s only writing about the failure of free-market ideas, but he’s actually describing the intellectual life cycle of most ideas in political economy. All intellectual movements start with trenchant ways of understanding the world. As these ideas gain currency, they are used to explain more and more disparate phenomena, until the explanation starts to lose its predictive power. As time passes, the original ideas become obscured by ideology, caricature and ad hoc efforts to explain away emerging anomalies. Finally, enough contradictions build up to crash the paradigm, although current adherents often continue to advance the ideas in zombielike form. Quiggin demonstrates with great clarity how this happened to the Chicago school of economics. How he can think it won’t happen with whatever neo-Keynesian model emerges is truly puzzling.
Whether this applies to the Quiggin book is beside my point (I read an earlier draft of the manuscript but not the final). It is in any case a valuable observation and John Quiggin discusses it here. Drezner's full review, which covers a number of books, is here.
Why were the measured productivity gains so high in 2009?
You'll find the BLS statistics here, with a broader list of tables here. For the "Business Sector, output per hour," 2008 shows an overall growth rate of 1.1 percent.
The quarters of 2009 yield 6.1, 7.2, 8.3, and 3.5 percent growth rates.
The quarters of 2010 show 3.5 and 1.1 percent growth rates.
Total hours worked are falling through 2008 and falling at more than five percent by the third quarter of 2008.
In other words, there was a lot of "productivity growth" precisely when workers were being laid off, and not so much before or after. I interpret the "high productivity innovation" as the decision to lay the workers off, and the selection of workers, not the sudden advent and withdrawal of some new high productivity technology.
Assorted Links
1) "The justification to ban the mosque is no more rational than banning a
soccer field in the same place because all the suicide bombers loved to
play soccer." Ron Paul on the mosque controversy.
2) Interesting review (pdf) of the health care bill from NCPA.
3) Philosopher Galen Strawson defends my most absurd belief.
4) "We've learned more about cooking in the past 15 years than we had in the previous 15,000 years." Video interview with Wylie Dufresne. By the way, I don't think this is true–we have learned more why but the previous 15,000 years developed a lot of how. Surprising amount of political psychology in cooking, how to sell an unfamiliar food idea. FYI, don't forget the book.
Chinese traffic jam comment of the day
“Everybody has to use this road as the other is too expensive, it should be free.”
That's from a Chinese truck driver and Tom Vanderbilt offers further comment. Damien Ma at The Atlantic has this to report:
"The police blame the monstrous jam on highway roadwork, compounded by minor accidents and a few breakdowns," the Christian Science Monitor writes. "In fact, the mega blockage – the second in two months on a stretch of road about 130 miles northwest of the capital – is a tale of deceit and criminality that speaks volumes about China's breakneck economic development. And behind the traffic chaos stands King Coal."
Much of the coal in China is now loaded onto trucks rather than freight trains because China's rail system has numerous bottlenecks and is often over-taxed, which ends up creating supply shortages to the coast. Though it's impossible to know how many of the trucks are actually loaded with coal, the Christian Science Monitor is right that there's a good chance many of them are delivering "black gold" to the urban centers–whether the products are legal or illegal.
The highway on which the jam has occurred leads to Inner Mongolia–now the biggest coal-producing province in China.
There are still only 63 million cars in China, as of last year.
Why nerds like games
That's a topic from Robin Hanson. I'm not sure "nerds" is the right word here (or if there is a correct single word), but I get what Robin is trying to say:
Another explanation is that while nerds like to socialize, they are terrified of making social mistakes…Games let nerds interact socially, yet avoid mistakes via well-defined rules, and a social norm that all legal moves are “fair game.” Role-playing has less well-defined rules, but the norm there is that social mistakes are to be blamed on characters, not players.
I endorse this explanation (I am not sure if Robin does) and I notice some testable predictions. If nerds are otherwise constrained and thus underconsuming social experiences, nerd-run games should be especially boisterous and enjoyable. Nerds should invest more resources to play these games than non-nerds will find explicable; to non-nerds the games will seem superfluous. Nerds should seek out games with intensely social elements. In my limited sample of experience (I don't like these games myself, but every now and then they are played in my place of employment), I see these predictions being validated.
Assorted links
Sentences on bond bubbles
7. As asset maturities get shorter, the noise trader risk is diminished. This means that we can rely more on the prices of short term treasuries when formulating public policy. Temporary tax cuts are a no-brainer, while it is much harder to reliably measure the NPV of infrastructure investments with long payback periods.
8. The most important noise trader in the interest rate markets is China. Authorities are pushing for a much higher level of the savings than can be justified by the preferences of the Chinese people.
Here is a bit more.
The supply curve slopes upward
For background, Cyprus allows commercialization of the practice and many European nations do not:
According to a 2010 study by the European Society of Human Reproduction and Embryology, nearly 25,000 egg donations are performed in Europe for fertility tourists every year. More than 50% of those surveyed traveled abroad in order to circumvent legal regulations at home. The Cypriot government estimates that, each year, 1 in 50 women on the island between the ages of 18 and 30 sells her eggs. One NGO analyst says that among the island's Eastern European immigrants, the rate may reach 1 in 4, and some women give up their eggs several times in a year. By comparison, only 1 of every 14,000 eligible American women donates.
Here is the full story, the article is interesting throughout. Can you guess which women face the highest demand for their eggs? I thank Alex Mann for the pointer.