Assorted links
1. Pandrogeny: one man's project to turn himself into his deceased spouse.
2. Will Leipzig have to pay off bonds from 1926, thereby possibly bankrupting itself?
3. Via Chris F. Masse, Intrade archive and here and here Chris points us to AcaWiki.
4. Caplan-Boettke debate on Austrian economics.
5. David Leonhardt on Bruce Bartlett.
7. Are mandatory calorie reports on the menu effective?: No.
From the comments
I'm out of my depth in economics here, but perhaps one reason it's
different when there's a bubble inflating rather than bursting is
*information*. When the housing bubble or the dot.com bubble is
inflating, it's fairly easy for people to know that it's inflating, and
thus where the new jobs are. People from hundreds of other parts of the
economy know that there are jobs to be had (and pretty good investment
opportunities to be had) in housing (real estate, construction, selling
mortgages) or in dot.coms (software, selling development tools,
investing in startups).
When the bubble pops, the information about where jobs are is much
more diffuse. It's not "go west (to the Bay Area) young man," but
rather "go back wherever you came from and see what's available."
And here is comment by Russ Roberts.
Assorted links
1. Markets in everything: fish in a squirrel suit (disgusting), via Kathleen Fasanella).
2. How good is microinsurance?
3. Preserving network neutrality without regulation.
4. More on pay-what-you-wish pricing.
5. Ryan Avent responds; in his closing: "I have learned something from this exchange – Tyler discounts arguments
couched in emotional, or emotional-seeming, terms. That’s a shame.
Sometimes people see and write most clearly when they allow themelves
to be angry. It’s then that they feel no obligation to water down their
argument with unnecessary caveats or efforts to protect interpersonal
relationships. Maybe Tyler never has these inclinations, but I believe
that most people do."
Thrivers Wanted
The Healthcare Economist points us to this description of Kaiser Permanente's advertising campaign:
Kaiser said its 2008 Thrive campaign will move into new areas, including… “a robust outdoor campaign throughout Northern and Southern California,” ads that dominate gyms like 24 Hour Fitness (on walls, mirrors, water bottles and yoga mats, for example), a major presence in Vallejo’s Six Flags Discovery Kingdom amusement park, the Olympic ads, election-specific commercials and print ads in venues like Time, Newsweek, Sunset and Cooking Light, said Lisa Ryan, Kaiser’s director of national advertising.
Hmmm…Any guesses as why they are advertising at gyms, the Olympics and in Cooking Light?
The one nagging thing you still don’t understand about yourself
This is one of the best "time wasters" I've come across in some time. Here is the upshot:
The email edition of the British Psychological Society's Research
Digest has reached the milestone of its 150th issue…To mark the occasion, the Digest editor has invited some of the world's leading psychologists to look inwards and share, in 150 words, one nagging thing they still don't understand about themselves.
Here is Paul Rozin's answer:
I generally believe that we learn from experience. However, a recent study
I did with Karlene Hanko repeats a finding from Kahneman and Snell,
that people are very poor at predicting how their liking will change
for a new product (in our case, two new foods and two new body
products) after using it for a week. We predicted that the parents of
our college undergraduates would be better than their children at
predicting their hedonic trajectory, but 25 more years of self
experience did nothing for them. Nor for me. Every night, I bring home
a pile of work to do in the evening and early morning. I have been
doing this for over 50 years. I always think I will actually get
through all or most of it, and I almost never get even half done. But I
keep expecting to accomplish it all. What a fool I am.
Here is Norbert Schwarz on incidental feelings:
One nagging thing I don’t understand about myself is why I’m still
fooled by incidental feelings. Some 25 years ago Jerry Clore and I studied
how gloomy weather makes one’s whole life look bad — unless one
becomes aware of the weather and attributes one’s gloomy mood to the
gloomy sky, which eliminates the influence. You’d think I learned that
lesson and now know how to deal with gloomy skies. I don’t, they still
get me. The same is true for other subjective experiences, like the processing fluency resulting from print fonts
– I still fall prey to their influence. Why does insight into how such
influences work not help us notice them when they occur? What makes the
immediate experience so powerful that I fail to apply my own theorizing
until some blogger asks a question that brings it to mind?
For the pointer I thank Michelle Dawson. By the way, I wonder if those are their real answers; I wouldn't tell you mine.
Business cycle asymmetry and sectoral shocks
Paul Krugman asks a good question:
And now as then, the whole notion [TC: what I call sectoral shift theories] falls apart when you ask why, say, a housing boom – which requires shifting resources into housing – doesn’t produce the same kind of unemployment as a housing bust that shifts resources out of housing.
This of course was also Sraffa's 1932 critique of Hayek. I would cite a few points:
1. Bloom, Floetatto, and Jaimovich focus on factors of confidence and option value in a real business cycle model to help explain the asymmetry. Alex and I present related arguments in our Principles text.
2. Standard models of matching and job search generate cyclical employment behavior in the required manner when combined with varying real shocks; see for instance Mortensen and Pissarides (1994). The asymmetry in these models comes from the difference between job creation and job destruction, which is again related to option value. M&P even build some simulations to show the effects can be quite large and that they fit to some extent with real world data. This is one of the best macro papers of the last twenty years and it is commonly recognized as such.
3. Caballero and Hammour have done relevant work in this area. You may recall their modeled proposition, published in the QJE: "Government incentives to production may alleviate unemployment but exacerbate sclerosis. In contrast, creation incentives increase the pace of reallocation." (As you'll see in a later post, that's not even the main claim I wish to make.) See also this paper.
4. Greg Mankiw, with Ricardo Reis, has some excellent and still undervalued papers on sticky information and business cycles.
5. The asymmetry between the upward and downward phases of the cycle was very much a concern of Knut Wicksell in his 1898 Interest and Prices. Wicksell's account, as I understand it, emphasizes the interaction between real and monetary shocks. This is still a better book than most of contemporary macroeconomics.
6. I still believe Krugman is correct in leveling "the asymmetry charge" against Austrian business cycle theory, with its excessive emphasis on monetary tricks. That doesn't mean the asymmetry charge always defeats a sectoral shock theory.
7. I don't think that sectoral shifts explain most business cycles. I was convinced by Christina Romer's work that a lot of downturns are simply the result of contractionary monetary policy at the wrong time. I'm also convinced by the Brainard and Cutler paper that sectoral shifts didn't have much to do with the downturn of the early 1980s. Nor do I think that the recent crisis is all about real shocks or that sectoral shifts explain every aspect of the downturn — hardly. Still, the theory behind real shocks, sectoral shifts and the like has improved a good deal since Schumpeter.
Overall I'm puzzled by Krugman's post in response. Why cite a weak argument by Schumpeter when so much stronger work is available to discuss?
By the way, Schumpeter himself charged that the Keynesians were misunderstanding the real accounts of the business cycle, including Pigou (and I read him as referring to himself as well); see p.944 in his History of Economic Analysis. Schumpeter was a selective re-reader of the past, however, so perhaps Krugman's interpretation of him remains correct.
Addendum: Arnold Kling comments. And Robert comments.
Nicholas Tabarrok, Guest Blogger
Variety recently named my movie-producer brother, Nicholas Tabarrok, one of 10 Producers to Watch. Starting tomorrow he will be guest blogging for a week here at Marginal Revolution. Nicholas's firm, Darius Films, has produced a lot of good indie movies including Weirdsville, Cooper's Camera (starring Daily Show veterans Jason Jones and Samantha Bee) and one of my favorites The Life and Hard Times of Guy Terrifico which features Kris Kristofferson, Merle Haggard and many other country stars. His latest is Defendor, one of the few films to sell this year at the Toronto film festival and starring Woody Harrelson, Kat Dennings and Sandra Oh. No blockbusters or Academy Awards yet but Nick's track record of bringing investors, stars, directors and actors together–all of whom are utterly crazy in their own way– to make movies on-budget and on-time is truly amazing.
I'm not sure what he will be blogging this week but if you have questions or ideas to suggest feel free to put them in the comments.
In case you were wondering: free review copies
The regulators have spoken and they require disclosure. I would guess that about one fifth of the books reviewed here are advance review copies which I did not pay for. They were sent to me for free, by demons who wish to addict me. If am reviewing a book before its publication date, it is almost certainly an advance review copy, sent to me for free.
If I am reviewing a book past its release date, it is only rarely a free review copy. Very often I visit the free public library and walk away with ten or twelve books in my arms. Just this week I ordered two new books for $40 a piece and I would not have bought them otherwise, but for my desire to please MR readers with my timely reviews (which are forthcoming).
I hardly ever receive works of fiction. I am never sent toys or given free trips to Disneyland.
It is reported:
For bloggers, the FTC stopped short of specifying how they must
disclose conflicts of interest. Rich Cleland, assistant director of the
FTC's advertising practices division, said the disclosure must be
''clear and conspicuous,'' no matter what form it will take.
Beware! You have been warned in a clear and conspicuous manner that the demons control me and I do not in turn control the demons.
Addendum: You might wish to read Tyrone on free will. The real scandal is that we (possibly) live in a frozen four-dimensional space-time block and that the content of my reviews has been fully determined by the initial conditions of the universe.
Markets in everything, philosophers’ edition
Essays on Derek Parfit's On What Matters, edited by Juissi Suikkanen and John Cottingham. This book is due out shortly in late October.
The Amazon description reads, aptly:
In Essays on Derek Parfit's On What Matters, seven leading moral philosophers offer critical evaluations of the central ideas presented in a greatly anticipated new work by world-renowned moral philosopher Derek Parfit.
An Amazon.com search, or for that matter a Google search, reveals no pending release date for On What Matters. Perhaps the editors have dabbled in the Newcomb problem? Or have they simply read too much David Lewis?
For the pointer I thank Alex T., a loyal MR blogger.
Economic development and mental illness
Subsequent studies have confirmed that patients in the developing world are much more likely to recover from severe mental illness than patients in the richer countries, well served by psychiatrists and clinical psychologists.
That is from Richard P. Bentall's Doctoring the Mind: Is Our Current Treatment of Mental Illness Any Good? You can think of this book as an updated, more traditionally empirical, less polemic version of Thomas Szasz. It makes large claims which are difficult to evaluate. Ultimately I don't find that it offers a persuasive alternative framework for thinking about either mental illness or "mental illness." Nonetheless the book is stimulating, it relies on substantive argument, and it will induce skepticism about a lot of what passes for treatment these days. Here is one review of the book, here is another.
Assorted links
Is Real Business Cycle Theory Dead?
No. Real business cycle theory is alive and kicking. If we write Y=a*F(K,L) and call “a” technology then an RBC theory is mostly about how fluctuations in “a” change output. Amusingly, Brad DeLong calls this the great forgetting theory of recessions and indeed it is hard to see how we could forget about technology, thus reducing output in some periods. But this view takes the term technology too literally.
I am in my office every day (L=1), my computer is here every day (K=1) but my output and thus my productivity fluctuates. Why? It’s not that I forget how to use STATA. Some days, however, a reporter calls and distracts, another day I need to tidy my office, on other days creativity just doesn’t strike. In short, everyone recognizes that at a micro-economic level productivity fluctuates a lot so why should macro productivity follow a smooth process?
In fact, there is a standard answer to that question which is the law of large numbers–spread idiosyncratic productivity shocks across many firms and in the aggregate volatility will be low. In an important paper, The Granular Origins of Aggregate Fluctuations, Xavier Gabaix takes on this answer with a simple but important point: large firms matter.
In the United States, for example, sales of the top 100 firms account for about 30% of GDP. (The share is even larger in most other developed economies.) In fact, we know from my GMU colleague, Robert Axtell, that firm size follows Zipf’s law. As a result, large firms get larger in larger economies so that firm-level productivity shocks do not disappear in the aggregate even in large economies.
Gabaix shows theoretically that combining idiosyncratic shocks and Zipf’s law for firm size can produce significant fluctuations in GDP. Empirically the difficulty is to distinguish aggregate shocks from firm-specific or sectoral shocks. Using one plausible, but no doubt debatable decomposition, Gabaix shows that idiosyncratic shocks to the top 100 firms can explain about one-third of aggregate volatility.
The bottom line is that Gabaix has opened the way for a much richer real business cycle theory in which real shocks can be identified and tied to specific firms and through transmission mechanisms these real shocks can affect the aggregate economy.
Leningrad during the Nazi siege
In 2002 secret police records were released. They reveal that during the siege at least 300 people were executed for cannibalism and over 1,400 imprisoned for it.
That is from Michael Jones's compelling Leningrad: State of Siege.
*The Invention of Lying*
I didn't think it was possible to make a movie this Hansonian and no they never waver. The basic premise is "a comedy set in a world where no one has ever lied." People speak the truth to each other in unbiased fashion and every channel on TV is some version of The History Channel. You then see, step by step, why this is not a Nash equilibrium and you observe, as the title indicates, "the invention of lying," including under conditions of altruism. Along the way, you see a theory of the origins of religion, a portrait of how the world would look if no one signaled, a redo of Geoffrey Miller on The Mating Mind, and hints at the idea of ESS. It's a "remarkably radical comedy" (Ebert) and the gushy parts have hidden venom.
Assorted links
1. Robert Frank channels Mark Kleiman on using game theory to fight crime.
2. Inappropriate posters for Roman Polanski movies.
3. Markets in everything: Google Wave advance invites for sale.
4. New Larry Summers profile, from The New Yorker. Brad DeLong has several posts of comment.