Is policy uncertainty the problem?

by  Tyler Cowen in

Pete Boettke says "policy is the problem."  Ezra says he can't find evidence that policy is the problem.

I hold the intermediate view that policy uncertainty is a problem but not the problem.  On one hand, policy uncertainty probably has been greatest for the health care sector, yet job growth in that sector has been relatively robust.  Furthermore, Obamacare may bring uncertainty, but part of the uncertainty is about whether employers can get away with dumping their workers onto the subsidized exchanges.  Arguably that should help hiring rather than hurt it.

I expect electoral gridlock by November yet no one seems to be welcoming that "certainty" very much.

Perhaps most importantly, deleveraging recessions usually take a long time to recover from in any case and there's not a lot of good cheer along the way.

I would be more convinced by the uncertainty view if it were combined into a larger, coherent story, consistent with reported corporate profits being fairly high.

Do the implicit volatilities embedded in option prices show a lot of expected uncertainty?  Maybe, but again I'm waiting to see the evidence.  If so, this one should be staring us right in the face.

On the other side of the ledger, the tax code remains highly uncertain, to our detriment, and monetary policy is some mix of uncertain and baffling (though see the above point on implicit volatilities). 

There is also behavioral economics.  An image or speech or proposed law can crush a mood, whether or not that is rational.  I can't cite a lot of systematic evidence for this having happened, but I know from talking to people how many of them think, rightly or wrongly, that Obama is very very bad for the American economy.  I believe that is a factor in our slow recovery. 

Be careful to separate your positive and normative views here.  Maybe the audience is "at fault," rather than the messenger, but still some people are very upset.  Every time I read a left-wing writer dismantling "right-wing media" I think they are actually providing another data point for the policy uncertainty hypothesis, although that is hardly their intent.  In many circles there is a perceived problem with our country, regardless how much that is based on fact or not.  If food consumers can be irrational and moody, political consumers (who are also investors) can be the same.  Still, I don't know how significant this factor is.

Temporary hiring is quite high, while permanent hiring is not.  However that need not show that the decisive uncertainty comes from politics.  Furthermore it instead could mean that the fixed cost of hiring labor full-time is high but not uncertain.

A lot of the current uncertainty is about a higher estimate of overall systemic risk, rather than from politics per se.  Such risk worries may be a blend of private and public sector factors, such as worries about Europe or China.  Economic and political uncertainty are not always separable categories.

Overall I don't see a lot of clear evidence on this question but I think policy uncertainty is one factor, albeit an exaggerated factor in many circles.

Google and Verizon and net neutrality

by  Tyler Cowen in

I found this excerpt from Reihan to be persuasive:

I’ll just note that Google official line on wireless net neutrality, as stated by Richard Whitt, sounds fairly persuasive. Why insist on net neutrality regulations for wireline but not for wireless services?

First, the wireless market is more competitive than the wireline market, given that consumers typically have more than just two providers to choose from. Second, because wireless networks employ airwaves, rather than wires, and share constrained capacity among many users, these carriers need to manage their networks more actively. Third, network and device openness is now beginning to take off as a significant business model in this space.In our proposal, we agreed that the best first step is for wireless providers to be fully transparent with users about how network traffic is managed to avoid congestion, or prioritized for certain applications and content.

I believe in legally mandated net neutrality when monopoly is present, as with many cable providers, but not with wireless.  Here is my previous post on net neutrality.  Here are Robert Litan and Hal Singer, defending the Google-Verizon arrangement.

All the king’s horses and all the king’s men…

by  Tyler Cowen in

Here is another factor behind the recent German economic success:

A vast expansion of a program paying to keep workers employed, rather than dealing with them once they lost their jobs, was the most direct step taken in the heat of the crisis.

There is much more of interest here.  I would describe this as a major, still uninternalized lesson of the recent crisis, with its roller coaster-rapid dips.  In a highly specialized modern economy, it is much easier to prevent jobs from being destroyed than to create them again, at least assuming those are "good" jobs in the first place.  (Yes, people thought they knew this but it's an even stronger difference than had been believed.)  The U.S. auto bailout, for instance, worked better than did most of the stimulus program.  Most of the Austrians would disown this point, but you can pull it right out of Lachmann's Capital and its Structure. 

We should have cut the payroll tax as soon as possible, an idea which I might add Alex was promoting quite early on.

CAPTCHA Economics

by  Alex Tabarrok in

CAPTCHA (Completely Automated Public Turing test to tell Computers and Humans Apart) are the distorted text puzzles that are designed to keep spammers out of websites.  Although some AI systems have been developed to solve CAPTCHAs the market has discovered that it is cheaper to farm out the problems to workers in developing countries.

Here is an amazingly detailed investigation from researchers at UC San Deigo of the market for solving CAPTCHAs.

Bottom line:

  • Prices run about $1 per thousand CAPTCHAs solved, depending on the time of
    day and demand.
  • The median response time to solve a CAPTCHA is 14
    seconds and accuracy runs about 90%.
  • “[T]he
    business of solving CAPTCHAs,…is a well developed, highly-competitive industry with the capacity to solve on the order of a million CAPTCHAs per
    day.”

Hat tip: Mim’s Bits.

A short seasonal cycle: both a negative supply shock and a negative demand shock

by  Tyler Cowen in

This Friday some people will be so paralyzed with fear they simply won't get out of bed. Others will steadfastly refuse to fly on an airplane, buy a house, or act on a hot stock tip. It's Friday the 13th, and they're freaked out.

"It's been estimated that [U.S] $800 or $900 million is lost in business on this day because people will not fly or do business they would normally do," said Donald Dossey, founder of the Stress Management Center and Phobia Institute in Asheville, North Carolina.

The full story is here, hat tip goes to BrainPicker, and I am not sure how formal that quantitative estimate is.  Note also that some of that business is likely made up on other days, either earlier or later.

Assorted links

by  Tyler Cowen in

1. Layman's overview of P vs. NP and the new proof, and origami is NP hard.

2. Many prediction tools, from Ian Ayres.

3. Rumored Romer replacements.

4. Photos of "ugly animals," though many I find cute or more intriguing than ugly.

5. German growth beats estimates: "Laurence Boone, chief economist at Barclays Capital France, said the breakdown of the GDP figures was “somewhat surprising” because it was growth boosted by a 0.4 per cent increase in household consumption, which had been expected to be flat given unemployment and impending fiscal retrenchment."  Germany is growing at an annualized rate of over eight percent this quarter.  This divergence, however, does increase the strain on the euro.  Unfortunately, Germany is still quite exposed to potential real economy weaknesses from China and the weak eurozone countries.  There is more detail here.

Wichita fact of the day

by  Tyler Cowen in

It is, in percentage terms, the most export-oriented city in the United States.

According to a study published late last month by the Brookings Institution, a Washington think-tank, nearly 28 per cent of the city’s gross metropolitan product is sold abroad. That makes it the most export-oriented in the country, just ahead of Portland, Oregon – noted for its computer and electronics companies – and San Jose in California’s Silicon Valley.

Can you say "small aircraft"?

The Paul Ryan debates

by  Tyler Cowen in

I haven't followed the numerical specifics of his plan (see Krugman, McArdle, and Ezra), which will never be voted on, so at this point I'm more interested in the general problem motivating the reform.  We all know that health care spending has to be restrained in some manner.  There are (at least) two approaches:

1. Have the federal government take a more active role in shutting down or limiting some reimbursements, based on efficacy studies ("death panels").

2. Turn some or all of Medicare into a fixed voucher program and let individuals choose which set of restrictions they will accept from private suppliers ("grandma bangs on HMO door").

As I understand Ryan's approach, he is putting a great deal of emphasis on #2, whereas most Democrats favor #1.

Which mix of #1 and #2 is best is one question; which mix people will accept politically is another.  A third issue is which mix is time consistent and a fourth is which prevents "rationed" people from simply popping up somewhere else in the public health system.  I would start with those distinctions and see which policy direction people need to be nudged in, relative to the path we are on now.  That probably means greater acceptance of both #1 and #2, to some extent.

I believe that #2 works fine for a lot of health care, especially the less controversial and less emotional areas of care, such as laser eye surgery.  Neither #1 nor #2 work especially well, or are especially popular, for end of life issues.

Whatever problems the Ryan plan may have (should we dismiss all ideas from people with overly optimistic forecasts?), I take his contribution to be a nudge in the direction of #2, given the current political equilibrium.  Overall I see this as a healthy nudge, even if you think that relying fully or even mainly on #2 is undesirable, infeasible, and time inconsistent.

Very difficult questions

by  Tyler Cowen in

I have spoken at Jane St. Capital a few times and it is perhaps my favorite audience; everyone wants analytic content and everyone came prepared.  All of the questions were tough, but two in particular I was not prepared for.

First, I was asked "Which is the most underrated statistic for judging the value of an NBA player?"

My attempted answer was the player's presence on a very good, consistently winning team.  There are many players with impressive statistics, including unselfish statistics such as assists and rebounds, who are only of value on bad teams.  We overvalue such players.  Overall, really good teams don't keep bad players and really bad teams don't keep good players.  If a player has never been on a really good team, he might not be so good, with apologies to the earlier Kevin Garnett.

Second, I was asked who is most likely to write a novel about the financial crisis which will stand the test of time.  I do not see any such author around today, but if you have ideas leave them in the comments.  "DeLillo, if he were thirty years younger" was the best I came up with.  Or maybe something from genre fiction.  There are notable works of fiction dealing with the Great Depression, but I can't recall that any of them focus on the financial side.  It's a hard topic to be dramatic about, without being either too simplistic or overly technical.

Corn tamale home recipe

by  Tyler Cowen in

Here is another reader request:

more tyler cowen home recipes. previous installments have been helpful thanks.

Lately I have been buying frozen corn tamales ("tamale de elote") from a Latin supermarket or Shoppers Food Warehouse.  Steam them, wrapped, for ten to twelve minutes.  Serve with El Salvadoran white sour cream on top or to the side.  (Honduran or Guatemalan white sour cream will do in a pinch.)  You also can heat up some Goya small red beans, with a bit of freshly ground cumin and ideally some fresh stock.  For the ambitious, make the stock from celery, black pepper, salt, onion slices, pork neck, and one ancho chile, but the beans taste fine on their own.

It's one of the easiest good meals I know and its a way to bring some deflation into your life.

The Mulligan and Mankiw challenge to extreme Keynesians

by  Tyler Cowen in

To quote Greg:

University of Chicago economist Casey Mulligan offers a challenge to that view.  Casey points out that there is a regular surge in teenage employment during the summer months because more teenagers are available to work (that is, the supply of their labor has increased).  That is no surprise: It is normal supply and demand in action.  But if aggregate demand were the main constraint on employment, this increase in supply should not translate into higher employment during deep recessions such as this one.  But it does!

The link is here.

*City on the Edge*

by  Tyler Cowen in

The author is Mark Goldman and the subtitle is Buffalo, New York.  I loved this book.  It is a splendid portrait of twentieth century America, the connection of industrialism and the arts, the decline of manufacturing and the resulting urban casualties, an applied study of the wisdom of Jane Jacobs, and on top of all that it is the best book I've read on how excess parking helped destroy an American downtown.  I recommend this book to all readers of serious non-fiction.