Results for “Larry Summers”
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Random Thoughts from Jerusalem

The first session of the Shimon Peres Presidential conference I am attending began strangely with a session featuring Dan Ariely, Sir Martin Sorrell, Jimmy Wales, Shakira and Sarah Silverman.

Ariely was fine, he gave his usual talk on self-control and temptation, cleverly labelled the “Adam and Eve” problem. Most interesting thing I had not heard. Just like people, rats and pigeons have a hard time resisting a short-term pleasure even at the expense of a much larger future pleasure. The interesting part is that just like people, rats and pigeons seem to know that they are making a mistake so they will pay to have the short-term choice taken away from them (like people locking their refrigerator.) Ariely,however, kept his insights on the “how to lose weight” level and didn’t attempt to address any larger issues.

Sorrell was a total bore.

Wales talked about Wikipedia, the power of voluntarism, and the Wikipedian assumption of good faith.

Shakira told us about the importance of early education. She was earnest and I’d rather hear it from her than Jim Heckman but it was still boring.

An incompetent interviewer tried to make jolly with Sarah Silverman. She was the only, however, to address real issues and was quite clever although she also told us that she really had to pee.

The opening acts over with, we then had Shimon Peres, Tony Blair, Bernard Henri-Levy and Amos Oz.

Peres at 87 is vigorous, optimistic and pro-science (“science cannot be contained by governments and flourishes most with peace.”) Impressive.

Tony Blair gave a very pro-Israel speech, even more than expected (“the model for the region”).

BHL said nothing wrong–indeed, he discussed a topic I would have discussed, democratic peace theory, albeit presented too strongly. He also noted that for decades the Libyans and Syrians have been taught that Israel is the great Satan but now the veil has been lifted and Satan is found closer to home. I find it difficult to take BHL seriously, however. No doubt the fault is mine.

The highlight of the evening was Israeli novelist Amos Oz. Oz gave a hard-hitting speech full of quotable moments (here are paraphrases but look for the speech online for a real sense). Many will disagree with the conclusions but it was still an excellent speech in delivery, allusion, and insight:

The suppression of the Palestinians is immoral and not in Israel’s genuine self-interest. The building of settlements is immoral and not in Israel’s genuine self-interest. The expansion into East Jerusalem is immoral and not in Israel’s genuine self-interest.

I love Israel even when I don’t like it.

I am not a hippy. I say make peace not love.

Why is it that the same Europeans who hate Hollywood treat the Israel/Palestine conflict with the subtlety of a Hollywood movie with bad guys and goods guys?

It’s going to be an amputation for both sides.

Oz’s speech was mostly well received by this audience of Israel’s secular/liberal elite but there was heckling especially when he said that there would have to be a two-state solution along the 67 lines (with modifications) and that Israel would have to give up biblical lands. Oddly Sarah Silverman had hit on this point earlier, “What do you want,” she asked, “acreage or values?”

Today we have Larry Summers, Dr. Ruth, and a course on game theory from Aumann. Strange but interesting.

P.S. The rugelah at the Marzipan bakery was excellent.

Paul Krugman tries to lure Scott Sumner out of retirement

Krugman writes:

But when you cut the price of everything — which is more or less what happens when wages fall across the board — there’s nothing else to substitute away from.

Yes, economics textbooks typically show a downward-sloping “aggregate demand curve”. But the reasons for that curve’s downward slope aren’t the same as for your ordinary demand curve. It’s a process that works like this: lower prices -> lower demand for money -> lower interest rates -> higher spending. And that process doesn’t operate when, as is currently the case, short-term interest rates (which are the ones that matter for money demand) are zero.

Here is more.

Yet a deflationary downward spiral is not the necessary or even the likely outcome.  Even if a liquidity trap prevents the Fed from credibly inflating to recovery, it is much harder to argue that the Fed is helpless to prevent a downward deflationary spiral.  The Fed can do that very credibly indeed.  The Fed is already doing that.  It’s credible and there is no undesired outcome, such as five or six percent inflation, which needs to be seen through ex post.

Another way to put this point is that the AD curve does not sufficiently embody the Fed’s reaction function (Larry Summers is fond of making a related observation), much less individual expectations based on that reaction function.  The model is incomplete and in this case the incompleteness really matters.

A few smaller points deserve mention:

1.Wages usually fall sequentially, not across the board and all at once, especially not in a large, decentralized, non-trade union-ruled economy such as the United States.  That creates a greater chance that an employment boost kicks in, in some sectors, before prices fall (prices are sticky too!) and thus the economy may enter a Clower-Leijonhufvud-Hutt upward spiral of employment and output.

2. Krugman’s third sentence (“It’s a process that works like this: lower prices -> lower demand for money -> lower interest rates -> higher spending.”) need not be the dominant causal mechanism when so many variables are changing.  Scott in particular might think that interest rates are not so important.

3. A different reason to be skeptical of wage cuts, as a mechanism for macroeconomic recovery, is simply that wage cuts are often small relative to threshold required rates of return for investors, especially when “wait and see” remains an option for those holding the cash.

Assorted links

1. Links to rumors of Larry Summers leaving the Obama administration.

2. Bill Simmons endorses sabermetrics.

3. Doctors with ownership of surgery center operate more often.

4. Albert Hirschmann is 95 years old today.

5. Markets in everything, end grade inflation: outsource grading to Bangalore.

6. Strip mall vacancy rate hits 10.8% — good for ethnic food?

7. Dick Thaler replies to libertarian critiques from Glen Whitman and the gentlemanly Mario Rizzo.

Measuring Hayek’s citation count

Jacob Levy has an update:

Proceeding from the other direction: a search just on Hayek restricted to business, economics, finance, law, linguistics, philosophy, political science, psychology, public policy, and sociology eliminated all the false positives I could find. 9385 . Searching for "milton friedman" in those same disciplines (and as far as I know there's no ambiguity in how to refer to him): 8088.

Now, I don't really think that citation counts are going to do the work Wolfers wants them to do here. But on his terms, Hayek is now out of Larry Summers' company, and into Friedman's.

He also shows that searching for further permutations on Hayek's name, such as adding a space where needed, ups the total number of cites a considerable amount.

Assorted links

1. Malaria and African economic development, via Chris Masse.

2. Lengthy profile of Larry Summers, from TNR, interesting and has new material.

3. Via Chug, markets in everything: topless coffee shop in Maine.  And, via Matt, a topless doughnut shop, same state.

4. Update on Massachusetts health care; interesting throughout.  Can they really do away with fee for service?  ""Really controlling costs requires just stopping spending,” said Stuart H. Altman, a professor of health policy at Brandeis University."  The Obama administration would be wise to keep those words in mind.

Public choice perspectives on the fiscal stimulus

If you want to worry less about the stimulus, try this argument.  Government will spend a certain amount of money in any case, but that spending can be of higher or lower quality.  Maybe you don't like the stimulus spending but is it possible that the spending alternatives would be even worse?  Lock Jason Furman and Larry Summers in a room for an hour, with no web connection and equipped only with a single crayon between them.  They still would come up with a better spending plan than would Congress and perhaps we are getting some version of what except they have more than a crayon.

Alternatively, perhaps progressives should be a little worried.  As Matt Yglesias admits, evidence on massive fiscal stimulus is iffy (through nobody's fault, it's simply hard to know).  But if you're a progressive, the opportunity cost of spending that money is a very non-iffy, highly-likely-to-succeed government program of some kind.  Call it public health infrastructure.  Maybe the content of the stimulus bill isn't as progressive as the alternatives.

If you're a libertarian, the government will just waste that money anyway.  Can it be that progressives should be more worried about the stimulus, in net terms, than libertarians?

The underlying fiscal model here is that Obama has more good ideas (good from a progressive point of view, at least) than he is allowed to spend money on but he will spend as much as he can.  These conclusions can be overturned to the extent that the prospect of a stimulus increases the total of what will be spent.

Addendum: Is Jeff Sachs agreeing with me?