Results for “mood affiliation”
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Tyrone on why Democrats should vote for Donald Trump

I know that Tyrone, my evil twin brother, has been fairly silent in 2015, but that’s only because he’s been so busy whispering things in my ear.  He’s also been spending his profits from having shorted the Chinese stock marketAnd having shorted the Democrats.

Can you imagine his latest?  Electoral politics once again, his weakest area (not nearly as good as Tyrone the neo-Fisherian).  Well, I scribbled down some notes on a napkin, over lunch, so this is an imperfect rendition of what he really said.  Tyrone in fact didn’t want me to write this post, fearing people would take it the wrong way.  Here goes, here is Tyrone at his mischievous worst:

Tyrone: It is obvious that intellectual Democrats, especially those concerned with climate change, should vote for Donald Trump for President.  Furthermore they should welcome his ascent, as should intellectual Republicans.

Let’s accept the commonly argued premise that climate change, if not quite an existential risk, can drastically lower the quality of life on earth for generations to come.

There is some chance that Trump will in fact support some kind of comprehensive climate change legislation.  After all, he used to be a liberal, but perhaps more importantly he wants to think of himself as a savior.  The chance of this is higher than that of any other Republican, and he is hardly beholden to the standard lobbies.

Most importantly, the chance of Trump “going Nixon” is higher than Hillary’s chance of selling meaningful climate change legislation to an oppositional Republican Congress.  She’ll be unpopular from day one, and the salaries of Dutch kunstmatige land consultants will skyrocket; that would bring a new Dutch disease, not just the one you get in those pretty Amsterdam shop windows.

OK people, let’s say Trump sticks to the mainstream Republican position.  What will happen then?  Won’t greedy capitalists rape the earth, not to mention building that energy-consuming wall?

Well, in the short run, maybe.  (Don’t forget Lennon on the omelette and those broken eggs!)  But we all know how disastrous Trump’s economic ideas would be in practiceThey would lower the growth rate of gdp and impoverish the masses.  Even if you read Trump as a policy moderate, just imagine what his volatile temperament would do to the equity risk premium.  (Then they would have to give Robert Barro a Nobel prize!)  And so, four or maybe eight years later, — or is it two? — what we could expect to find?  A fully Democratic Congress and White House.  (And dear reader, is there any other way to get there?)  And thus would arrive comprehensive climate change legislation, just as we got Obamacare post-2008.  Voila!  That’s way more important than maintaining America’s status as a nice, well-respected, and tolerant country, isn’t it?

So Democrats, if you really care about Bangladesh and Vietnam, and don’t just have this silly mood affiliation fancy that Tyler has fabricated, you should promote the candidacy of Donald Trump.  The more Democratic you are, the better.  The more worried about climate change you are, the better.  Your man has arrived on the national scene.  Finally.

Remember the take of Borges on Judas?  He made the real sacrifice of his reputation, so that the rest of us could be saved by Christ.  It is time for you too to be like Judas…[TC: At this point the absurdities piled up so high I just had to cut Tyrone off.]


Tyler again: Readers, I am so sorry for this.  I receive numerous requests for more Tyrone, but usually I resist.  The only reason I occasionally oblige is to show you all, once again, how crazy he is.  How unreasonable he is.  How subject he is to his own mood affiliations, foibles, and quirks.  How little heritability can explain, once you look get past superficial sibling similarities and look more closely at the details of the intellect.

Tyler’s view — my view — is that good Democrats in fact should support…[at which points Tyrone cuts Tyler off, and the two tumble over the proverbial cliff]…

Friday assorted links

1. Mark Koyama’s favorite books of the year.  And Bryan Caplan on the fallacy of mood affiliation.

2. The Quietus best music of 2015 list.  Not just the usual stuff, yet oriented toward smart listeners.

3. How to make nuclear weapons harder to use.  And a new installment from the drone wars.

4. Raising the alcohol tax lowers gonorrhea rates.

5. The linguistics of YouTube voice.

6. New evidence that the number of independent contractors actually is up, though pre-Uber.

7. Robert P. George of Princeton is ailing.

My macroeconomic framework, circa 2015

A while ago Scott Sumner laid out at least part of his framework, I thought I should lay out some key parts of mine.  Here goes:

1. In world history, 99% of all business cycles are real business cycles.  No criticism of RBC can change this fact.  Furthermore the propagation mechanism for a “Keynesian business cycle” (arguably a misleading phrase) also relies on RBC theory.

2. In the more recent segment of world history, a lot of cycles have been caused by negative nominal shocks.  I consider the Christina and David Romer “shock identification” paper (pdf, and note the name order) to be one of the very best pieces of research in all of macroeconomics.  Sometimes central banks tighten when they shouldn’t, and this leads to a recession, due mainly to nominal wage stickiness.

3. Workers are laid off because employers are often (not always) afraid to cut their nominal wages, for fear of busting workplace morale, or in Europe often for legal and union-related reasons.

4. Overall I favor a nominal gdp rule for monetary policy.  But most of its gains would come in a few key historical episodes, such as 1929-1932, or 2008-2009.  In most periods I don’t think we know what the correct monetary policy should be, nor do we know that it matters.  Still, that uncertainty does not militate against an ngdp rule.

5. Once workers are unemployed, nominal wage stickiness is no longer the main reason why they stay unemployed.  In fact nominal wage stickiness is largely taken out of the equation because there is no preexisting nominal wage contract for these workers.  There may, however, be some residual stickiness due to irrational reservation wages, also known as voluntary unemployment due to stupidity.  (You will find a different perspective in Scott’s musical chairs model, which I may cover more soon.)

5b. Monetary stimulus to be effective needs to be applied very early in the job destruction process of a recession.  It is much harder to put the pieces back together again, so urgency is of the essence.

6. The successful reemployment of workers depends upon a matching problem, a’la Pissarides, Mortensen, and others.  Yet this matching problem is poorly understood, and it can involve a mix of nominal and real imperfections.  Sometimes it is solved more quickly than expected, such as in the recent UK experience, and other times more slowly than expected, as in current Spain.  Most of the claims you will read about this reemployment of workers are wrong, enslaved to ideology or dogmatism, or at the very least unjustified.  Hardly anyone wants to admit this.

7. Really bad recessions involve deficient aggregate demand, negative shocks to intermediation, some chronic supply-side problems, negative wealth effects, and increases in the risk premium, all together.  It is hard to find a quick fix.  Furthermore models where AS and AD curves are independent and separable are often misleading, despite their analytic convenience.

8. Given that weak AD is only one of the problems in a bad downturn, and that confidence, risk, and supply side problems matter too, the best question to ask about fiscal policy is how well the money is being spent.  The “jack up AD no matter” approach is, in the final political equilibrium, not doing good fiscal policy any favors.

9. You should neither rule out nor overstate the relevance of Hayek and Minsky.  Their views have much in common, despite the difference in ideological mood affiliation and who — government or the market — gets blamed for the downturn.  For really bad recessions, usually both institutions are complicit to say the least.

10. All propositions about real interest rates are wrong.

There is more, but I’ll stop there for now.

A simple primer for understanding China’s downturn

I’ve covered these ideas before a number of times, but now the Chinese slowdown is common knowledge, so let’s put them in one place:

1. You can’t invest 45-50 percent of your gdp very well forever.  It’s amazing how long China’s run has been, but it is over.  The quality of their marginal investments is now low and that means their growth rate will be much lower too.  The low hanging fruit is gone, at least for the time being.  They might later on resurrect some new low-hanging fruit through institutional reform, we’ll see if they end up stuck in the middle income trap but right now they are at a sharp discontinuity.

2. There is no simple way to switch to a “consumption-driven” economy without the growth rate both falling and staying permanently lower.  Structural reforms are absolutely called for, but in this context they represent a surrender to a lower rate of growth and thus they are especially difficult to pull off in a politically sustainable manner.

3. The Chinese have been growing at ten percent or nearly ten percent for about thirty-five years.  More than a generation of Chinese is used to treating the risk premium as if they don’t have to worry about it.  I shudder to think what economic and also political decisions have been made on that basis.

4. The Chinese economic response to the dwindling of their low-hanging fruit is sharp rather than smooth because there is a sudden revision of expectations, as people realize the risk premium isn’t zero after all.  And seeing the others see that causes the new set of beliefs to spread pretty quickly.  That is a very painful process for a macroeconomy, and it is not well captured by simple AD-AS analysis, although of course it has implications for both AD and AS.

5. I would not so quickly infer that the Chinese government is stupid when it comes to economics.  It is true their actions do not correspond to what professional economists would recommend.  But they are painted into a very unpleasant corner and have lots of interest groups to feed.  Their observed response is possibly explained by some kind of public choice-constrained, nested game, internal conflict-driven seventh-best response.  They were smart a few years ago, and they are still smart now.  That doesn’t mean they will end up doing a good job.

6. Avoid mood affiliation!  You can be a pessimist about the Chinese recession now without being a) a pessimist about China in the longer run, or b) a pessimist about Chinese political stability.  Those are separate albeit related questions, and you are not forced to have the same mood response to all of them.

Keep this primer on hand at all times.  It is more useful than trying to twist the C + I + G tautology into a series of causal statements about China.

Is the Icelandic response to financial crisis generalizable?

Paul Krugman describes their policies as a mix of “debt repudiation, capital controls, and massive devaluation.”  Matt Yglesias refers to putting some of their bankers in jail.  But I say there is not a generalizable formula here.

Neither mentions that a major part of the Icelandic recipe was letting foreign deposit holders twist in the wind.  That’s a transfer of wealth to the domestic economy and furthermore it was politically palatable; it is also a choice which won’t much help any larger country where most of the deposit holders are domestic.  It is noteworthy that this kind of choice loomed large for Cyprus, another small country with a lot of foreign depositors.

Iceland is also so small that cutting off these creditors won’t much damage the broader global economy or lead to significant contagion.  Today, in a much safer macroeconomic environment, we’re not even sure the same could be said for Grexit, and Greece is a pretty small country in economic terms.

On top of all that, not paying back the foreign depositors was a transfer to Iceland.  It is easy enough to see why Icelanders might like that idea, but the objective foreign analyst, who ought not favor the more Nordic peoples above the others, also should consider the loss side of the ledger, namely in the UK and Netherlands.

What else?

Don’t forget that the value of the Icelandic stock exchange fell by 90% – how many other countries could endure that or would accept it?  That is easier to pull off when there are only six stocks trading on your exchange and those equities are not central to your savings.

Capital controls are also not an option for many economies, including those that are serious about being financial centers or having reserve currencies.  More to the point, the flight of foreign capital is very often not a problem in the first place.  And we have plenty of experience with capital controls and the overall record is at best mixed; this is hardly a neglected heterodox innovation.  The imposition of Icelandic capital controls may well discourage foreign investment looking forward, and so the “record to date” will be misleading in this regard.  This is again a way in which Iceland has transferred the costs of its adjustment into the future.  On top of that, we still don’t yet know how well the Icelandic removal of capital controls will go.

I’m all for devaluing and accepting higher inflation in a lot of crisis situations.  This part of the Icelandic recipe is generalizable.  It’s worth noting, however, that the devaluation (especially with capital controls) imposed a harsh and immediate “austerity” on the Icelandic people, namely it was very hard to buy foreign goods for a while.  In other words, rapid real wage cuts were imposed on just about everybody.  If your country can do that, great, but it needs to be outlined how most economies will manage that trick.  See also Scott Sumner’s remarks on whether Iceland avoided traditional fiscal austerity.

Given some very tough circumstances, Iceland also did a reasonable job of “ring-fencing” its banks and separating the good from bad assets.  That may be generalizable too, although it doesn’t have the polemic punch of some of their other policy choices.

Overall, the experience from Iceland, upon closer inspection, is not very easily generalizable.  I suspect it receives much of its praise for reasons of mood affiliation — what could sound tougher than putting bankers in jail?  But overall, Iceland faced very different constraints and opportunities, relative to other countries in the financial crisis.

Addendum: Here are some relevant earlier posts.

How bad are the investor arbitration clauses in TPP?

Mood affiliation aside, these clauses do not constitute a significant reason to oppose the treaty, in my view.  Gary Hufbauer has a good discussion:

ISDS provisions enable a foreign investor to seek compensation in an amount determined by an impartial panel of arbitrators, if a host government expropriates its property, or regulates its business in an arbitrary or discriminatory manner. Such protections have been deemed necessary in agreements going back at least to a Germany-Pakistan accord in 1959, and they have successfully protected US investments overseas in many countries.

Often these ISDS provisions are part of bilateral investment treaties (BITs), of which more than 2,200 are now in force worldwide. The United States has 41 BITs with countries near and far, and is actively negotiating a BIT with China, aimed at strengthening the rights of investors in a country that has not always been fair. Starting with the North American Free Trade Agreement (NAFTA) in 1994, the United States has also included ISDS in the investment chapters in nearly all its free trade agreements (FTAs), now numbering 20. Given this rich history, Senator Warren should be able to cite actual examples of the multiple abuses that she claims have occurred. She has not done so, because she cannot. Senator Warren makes a big deal about the hypothetical outcome of the old Methanex case against California’s regulations on gasoline additives, but the case was decided against the Canadian corporation.

The record shows that, far from a record of multinational corporations trampling sovereign states, investors have won fewer than a third of the cases resolved by the ISDS process.1 Arbitration procedures were formalized in 1996, when the World Bank created the International Center for the Settlement of Investment Disputes (ICSID) as a neutral forum to handle ISDS claims. Similar fora are based in London, Paris, and Stockholm, but ICSID oversees the vast majority of claims. To date, ICSID has handled almost 500 cases.2 Of these, 36 percent were settled between the parties before going to arbitration. The arbitrators declined to hear 16 percent of claims for want of jurisdiction. They dismissed 19 percent of claims for lack of merit. Only in 29 percent of cases did the arbitrators uphold some or all of the business claims.

The full post is here.

Conventional wisdom, from me, on the Israeli election

Corey Robin has a useful survey of responses from the Left, some of which include repudiations of Zionism, in addition to claims that the current Israeli policies simply have to unravel, to the detriment of virtually everybody.  Think of the latter as a prediction of comeuppance, much like how inequality critics sometimes predict eventual doom for the wealthy if they do not redistribute their wealth.

From a separate direction, economist Glen Weyl explains on Facebook why he is now supporting the BDS movement.

I’m not interested in debating the normative side of the election, or various peace plans, right now.  What I find striking is how unready many critics are to confront what has happened, not just in the “Plan B” sense but also rhetorically.  The possibility that civil rights progress, peace progress, and self-governance and democratic progress simply have stopped, and won’t be back any time soon, is before us.  If anything, matters might become worse yet, especially once you contemplate Gaza.  Yet Western commentators don’t know where to turn, because the prevailing progressive narrative is one, not surprisingly, of progress.  The common progressive remedy is one of moral exhortation, but at this point it doesn’t seem like another lecture to Israeli voters is going to do the trick.

Such stagnation and possibly retrogression in outcomes is hardly novel at the global level, and even within Israel/Palestine proper it’s far from clear there has been much actual news from the Israeli election (i.e., the two-state solution has been failing for some while now).  Still, Israel attracts enough attention, and loyalty, that this is producing an intellectual crisis for many.  Some people feel they have been made fools of, and they are no longer happy playing along with the fantasy of an eventual peace deal based on ideals of democracy and rule of law.  They wish to recast their mood affiliations, but where really to turn?

By the way, the world has been getting more violent since 2007.

The Not Very Serious People diplomacy update

The newspaper header is:

Panos Kammenos, Greece’s defence minister, threatens to open country’s borders to refugees – including potential members of Islamic State of Iraq and the Levant (Isil) – unless Athens receives debt crisis support

The story is here, via Andrea Castillo.  Whether it jives with your mood affiliation or not, it’s time to admit “these people simply don’t know what they are doing.”  Fortunately, it does seem the Greek government has been walking back on this talk.

How Andrew Sullivan changed America

I wrote a short piece on this for Vox, here is one excerpt:

Who is the most influential public intellectual of the last 20 years?

This designation should go to someone who actually has helped change the world, rather than just changing lots of minds. It also should go to someone who has embodied key trends of the time, noting that for both standards I am focusing on the United States.

Based on those standards, I am inclined to pick Andrew Sullivan, who is most recently in the news for his announcement that he is quitting after fifteen years of blogging.

Any discussion of Sullivan’s influence must begin with gay marriage. Thirty-six states and the District of Columbia already have legalized gay marriage, representing a majority of the American population, with possibly Alabama and others to follow. A broader Supreme Court decision for nationwide legalization may be on the way. More generally, gay rights have taken a major leap forward.

…I thought long and hard before selecting Andrew for the designation of most influential public intellectual. Perhaps Paul Krugman has changed more minds, but his agenda hasn’t much changed the world; we haven’t, for instance, gone back to do a bigger fiscal stimulus. Peter Singer led large numbers of people into vegetarianism and veganism and gave those practices philosophic respectability; he is second on my list. A generation ago, I would have picked Milton Friedman, for intellectual leadership in the direction of capitalist and pro-market reforms. But that is now long ago, and the Right has produced no natural successor.

Self-recommending!  And again, please note, you should not confuse the designation “most influential” with “the person who, I, the reader, would most like to see elevated in status.”  That would be a fallacy of mood affiliation.

What is the welfare cost of Amazon supply restrictions on books?

Maybe that welfare cost is not very high at all.   After all, if Amazon does not carry a book you can sign up at the Barnes & Noble website and that takes a few minutes at most.

There is a tension in most criticisms of Amazon.  On one hand, the critic wishes to argue that a “not carry” decision by Amazon has a big impact on how a book does.  On the other hand, the critic wishes to argue that the loss of access to particular titles is a big deal.  You cannot easily have it both ways.  If readers won’t switch to B&, they must not care very much about particular titles, in which case the Amazon refusal to carry (or delay in shipping) is small even relative to the size of the (small) trade in books.

Krugman’s column today, which covers Amazon vs. Hachette, appears terrible at first glance, but in fact he presents a new and original argument.  Get past the mood affiliation and you come to this:

…what Amazon possesses is the power to kill the buzz. It’s definitely possible, with some extra effort, to buy a book you’ve heard about even if Amazon doesn’t carry it — but if Amazon doesn’t carry that book, you’re much less likely to hear about it in the first place.

If I may fill in some blanks, one possible version of the hypothesis — to pull an idea from Gary Becker and Steve Erfle — is that readers consume both “books” and “buzz around books” as complements.  The marginal gains from books can be low but the marginal gains from the bundled package may be much higher and those higher gains will not be measured by the (high) price elasticity of book purchases.

In the early stages of this war, Amazon boycotts have often increased the buzz for a book, such as with Beth Macy’s Factory Man.  But if these practices continue, they will cease to be news stories and an Amazon refusal to carry or promote plausibly will damage how books will do, without much potential for upside.

How much of the value in a book/buzz package is due to the buzz?  65 percent?  That would explain the concentration of reading interest among bestsellers and books your peers are reading.  But if Amazon won’t carry or promote a book, does the total supply of buzz fall?  Or does the buzz simply transfer to other titles?  In the latter case we are again back to small welfare costs from an Amazon refusal to carry.  Krugman’s idea is fun, but I am still inclined to think the welfare cost of Amazon supply restrictions on individual books likely is small, again even relative to the size of the book sector, much less relative to gdp.

It is fine to argue that Amazon is being unfair to some authors and to object on ethical grounds.  The economist also should add that readers don’t seem to mind very much.  Most of the objections I am seeing are coming from authors and publishers, who of course in this sector are much less diversified in their interests than are readers.

Assorted links

1. Bryan Caplan on private sector vs. public sector workers: “Last month, I read most of the academic literature on this topic.  The more I read, the more confused I became.  As far as I could tell, researchers reached a clear answer: federal employees really are paid more than equivalent workers in the private sector.”

2. Slate on Srugim.

3. Megan on Hobby Lobby, on the mark.  The current discussion of this issue is chockful of mood affiliation.

4. Why don’t we have more telecommuting?  And Airbnb and the evolution of trust.

5. The earlier baby boom for Southwest native Americans.

Assorted links

1. Good Naidu essay on Piketty.  And a good Guardian piece on data discontinuities in Piketty.  More from Krusell and Smith, Piketty vs. modern macro theory.  Kevin Vallier on Piketty’s political philosophy.  Don Boudreaux reviews Piketty.  David Graeber does a mood affiliation take on Piketty.  And yet more mood affiliation on Piketty.

2. The economics of book festivals, an FT piece.

3. Tax policy and The Bible, by Bruce Bartlett.

4. E. Glen Weyl has a new paper summarizing price theory.

5. Not since 1952 have the puffins been so late.  And Art Carden is returning to EconLog.

6. A tale of two brothers, one of whom is rich.

A simple observation on the proposed the Comcast-Time Warner merger

Though combining the nation’s No. 1 and No. 2 largest cable providers sounds like the kind of transaction that would raise the eyebrows of regulators, the cable market is still so fragmented that even after the merger, Comcast will control less than 30 percent of total subscriptions. That number is significant. On two earlier occasions, most recently in 2009, federal courts rejected efforts by the FCC to cap cable ownership at 30 percent. Even if the rule had been upheld, the combined Comcast-Time Warner Cable wouldn’t violate it.

That is from Larry Downes.  Geoffrey Manne  has produced a lengthy study of the proposed merger.  His conclusion?:

As Manne summarizes his paper, there is no “plausible theory” of anticompetitive harm under current antitrust standards. “Instead,” Manne writes, “arguments against the merger amount to little more than the usual ‘big-is-bad’ naysaying.”

Here is an earlier post on this proposed merger.  When you get past all the mood affiliation here (corporate, “big,” “merger,” “cable company screws me over,” “inequality,” etc.) this merger just isn’t that big a deal and the case against it isn’t that strong.