J. Bradford DeLong's Blog, page 277

Fairly Recently: Must- and Should-Reads, and Writings... (November 26, 2018)

Monday Smackdown: Hoisted: Cliff Asness Department: Cliff Asness spent 82 minutes talking to Tyler Cowen. The phrase "Federal Reserve" does not appear in the transcript. The phrase "quantitative easing" does not appear in the transcript. The word "monetary" does not appear in the transcript. The word "debasement" does not appear. Tyler Cowen does not ask questions using any of those words. Cliff Asness does not use any of those words in answering questions. Seems to me Cliff Asness owes Ben Bernanke a big apology for this. And perhaps he could give us some clues as to whether he has learned anything from looking back at his wrong claim that Bernanke did not understand what the Federal Reserve should be doing?...

Weekend Reading: Hilzoy: Liberating Iraq (from 2007)

Elizabeth Bear: Shoggoths in Bloom

Samantha Henderson: Maybe the Stars

Wikipedia: United States Floating Battery Demologos

Roger Farmer: How New Keynesian Economics Betrays Keynes: "Self-fulfilling beliefs could explain business cycle fluctuations at least as well as the real- business- cycle paradigm that came to dominate graduate programs for the next thirty- five years. But, the sun spot agenda did not have a single strong leader and the figures who wrote the first two papers in the area, Azariadis, and Cass and Shell, were dismissive of the practical and empirical relevance of their ideas...

Philosopher Alex Rosenberg's actions are incomprehensible until you realize that he believes and desperately desires to convince us that there are no such thing as human beliefs or desires. Also: That Henry Kissinger is a bad man. You see the problem? The neurology level is useless if you want a better theory than the folk theory of mind. The behavioral economics level may be becoming useful. But for the life of me I do not see what Rosenberg has to add here. His book begins with a big song-and-dance about how narrative military history is useless because the Germans' opponents were flummoxed all four times the Germans attacked at Sedan between 1870 and 1940, thus���he claims���proving that it is impossible to learn lessons from narrative military history. It's clear why one might think the French (and their allies) failed to learn anything useful from narrative military history. It is much less clear why Rosenberg is so sur his example shows that the Germans- failed to learn from narrative military history: Alex Rosenberg: _How History Gets Things Wrong: "The Kaiser wasn���t thinking about anything at all when he gave the 'blank-check' to the Austrians. He didn���t have any desires about how matters should turn out, or any beliefs about how to organize things to make them turn out that way. He didn���t because no one has such thoughts... #cognitive

Alan L. Olmstead and Paul W. Rhode: Cotton, Slavery, and the New History of Capitalism

Isaiah Andrews and Maximilian Kasy: Identification of and Correction for Publication Bias: "Some empirical results are more likely to be published than others. Selective publication leads to biased estimates and distorted inference. We propose two approaches for identifying the conditional probability of publication as a function of a study���s results... #minimumwage #equitablegrowth #cognitive #statistics

Overlord

Bad Times at the El Royale

Rory Appleton: Cox Now 447 Votes Behind Valadao

Max Boot: Trump Goes to France and Dishonors U.S. War Dead

This seems to me to pretty much get it wrong. The right way to talk about what is to be called ���rational��� is to imbed the problem of thinking in its proper context. I think thought should proceed thus: (1) Do we have time and resources to gather more information before we have to make a decision? If the answer to this question is ���yes���, we then face a second question: (2) would gathering more information increase our knowledge enough to make it worthwhile to do so before making our decision? Answering that question requires very un-Bayesian modes of thought. But that question must be answered. And, having answered it, we either go and gather more information or we proceed to question: (3) Are we playing some kind of game against nature, or are we playing against another mind? If the answer is ���we are playing against nature���, then it is appropriate to go full Bayesian. If the answer is ���we are playing against another month���, then there is yet another question: (four) what is the other morning that we are playing against thinking that makes it willing to enter into this strategic interaction with us? The answer will probably be: ���at least one of the two of us is wrong in our understanding of the situation������as Warren Buffett says: ���if you do not know who is the fool in the market, you are the fool in the market���. Attempting to understand the implications of this question also leaves us down very un-Bayesian roads of thought. But understanding the implications of this question is essential to making a rational assessment of the situation. My problem with Gilboa et al. is that their criticisms of Bayesian Savagery do not provide any gruel at all to nourish us and thus help us in our task of figuring out what to do when Bayesian Savagery breaks down, either for information-gathering or for other-mind reasons: Itzhak Gilboa, Andrew Postlewaite, and David Schmeidler (2009): Is It Always Rational to Satisfy Savage���s Axioms?: "To explain our notion of rational choice, consider the following scenario. You are a public health official who must make a decision about immunization of newborn babies. Specifically, you have a choice of including another vaccine in the standard immunization package. This vaccine will prevent deaths from virus A. But it can cause deaths with some probability. The exact probabilities of death with and without the vaccine are not known. Given the large numbers of babies involved, you are quite confident that some fatalities are to be expected whatever your decision is...

I cannot help but thinking that this line of thought misses the elephant in the room. To reset the stories that have been told to us and seek for better stories ought to begin with more thought about why these stories we have inherited are the stories that have been told to us: Amal El-Mohtar (2017): WisCon Guest of Honour Speech: "I am their fury, I am their patience, I am a conversation...

#shouldread #weblogging

Monday Smackdown: Hoisted: Cliff Asness Department

I see that on November 18--7 days before the fifth anniversary of his appearing as lead signatory of the right-wing Republican "Open Letter to Ben Bernanke--Cliff Asness spent 82 minutes talking to Tyler Cowen. The phrase "Federal Reserve" does not appear in the transcript. The phrase "quantitative easing" does not appear in the transcript. The word "monetary" does not appear in the transcript. The word "debasement" does not appear. Tyler Cowen does not ask questions using any of those words. Cliff Asness does not use any of those words in answering questions.

Seems to me Cliff Asness owes Ben Bernanke a big apology for this. And perhaps he could give us some clues as to whether he has learned anything from looking back at his wrong claim that Bernanke did not understand what the Federal Reserve should be doing?

Cliff Asness et al. (2010): Open Letter to Ben Bernanke (2010): "We believe the Federal Reserve���s large-scale asset purchase plan (so-called ���quantitative easing���)...

...should be reconsidered and discontinued. ��We do not believe such a plan is necessary or advisable under current circumstances. ��The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed���s objective of promoting employment.

We subscribe to your statement in the Washington Post on November 4 that ���the Federal Reserve cannot solve all the economy���s problems on its own.��� ��In this case, we think improvements in tax, spending and regulatory policies must take precedence in a national growth program, not further monetary stimulus.

We disagree with the view that inflation needs to be pushed higher, and worry that another round of asset purchases, with interest rates still near zero over a year into the recovery, will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy.

The Fed���s purchase program has also met broad opposition from other central banks and we share their concerns that quantitative easing by the Fed is neither warranted nor helpful in addressing either U.S. or global economic problems.

Cliff Asness * Michael J. Boskin * Richard X. Bove * Charles W. Calomiris * Jim Chanos * John F. Cogan * Niall Ferguson * Nicole Gelinas * James Grant * Kevin A. Hassett * Roger Hertog * Gregory Hess * Douglas Holtz-Eakin * Seth Klarman * William Kristol * David Malpass * Ronald I. McKinnon * Dan Senor * Amity Shlaes * Paul E. Singer * John B. Taylor * Peter J. Wallison * Geoffrey Wood

Weekend Reading: Hilzoy: Liberating Iraq (from 2007)

Hilzoy: Obsidian Wings: Liberating Iraq: "Peter Beinart has a piece in TNR about why he supported the war: 'For myself, perhaps the most honest reply is this: because Kanan Makiya did.��When I first saw Makiya--the Iraqi exile who has devoted his life to chronicling Saddam Hussein's crimes--I recognized the type: gentle, disheveled, distracted, obsessed. He reminded me of the South African exiles who occasionally wandered through my house as a kid. Once, many years ago, I asked one of them how the United States could aid the anti-apartheid struggle. Congress could impose sanctions, he responded. Sure, sure, I said impatiently. But what else? Well, he replied with a chuckle, if the United States were a different country, it would help the African National Congress liberate South Africa by force.' He also writes about why he got it wrong...

...I was willing to gamble, too--partly, I suppose, because, in the era of the all-volunteer military, I wasn't gambling with my own life. And partly because I didn't think I was gambling many of my countrymen's. I had come of age in that surreal period between Panama and Afghanistan, when the United States won wars easily and those wars benefited the people on whose soil they were fought. It's a truism that American intellectuals have long been seduced by revolution. In the 1930s, some grew intoxicated with the revolutionary potential of the Soviet Union. In the 1960s, some felt the same way about Cuba. In the 1990s, I grew intoxicated with the revolutionary potential of the United States.��

Some non-Americans did, too. "All the Iraqi democratic voices that still exist, all the leaders and potential leaders who still survive," wrote Salman Rushdie in November 2002, "are asking, even pleading for the proposed regime change. Will the American and European left make the mistake of being so eager to oppose Bush that they end up seeming to back Saddam Hussein?"��

I couldn't answer that then. It seemed irrefutable. But there was an answer, and it was the one I heard from that South African many years ago. It begins with a painful realization about the United States: We can't be the country those Iraqis wanted us to be. We lack the wisdom and the virtue to remake the world through preventive war. That's why a liberal international order, like a liberal domestic one, restrains the use of force--because it assumes that no nation is governed by angels, including our own. And it's why liberals must be anti-utopian, because the United States cannot be a benign power and a messianic one at the same time. That's not to say the United States can never intervene to stop aggression or genocide. It's not even to say that we can't, in favorable circumstances and with enormous effort, help build democracy once we're there. But it does mean that, when our fellow democracies largely oppose a war--as they did in Vietnam and Iraq--because they think we're deluding ourselves about either our capacities or our motives, they're probably right. Being a liberal, as opposed to a neoconservative, means recognizing that the United States has no monopoly on insight or righteousness. Some Iraqis might have been desperate enough to trust the United States with unconstrained power. But we shouldn't have trusted ourselves.

I admire Peter Beinart's willingness to think about what he got wrong, and why. But while I think that he's right to say that we can't be the country the Iraqis and South Africans wanted us to be -- a country wise enough to liberate other countries by force -- there's another mistake lurking in the train of thought he describes. Namely:

It's not just that we aren't the country Beinart wanted to think we were; it's that war is not the instrument he thought it was.

You can see this pretty clearly when he refers to the "surreal period" when "the United States won wars easily and those wars benefited the people on whose soil they were fought." That we won all those wars easily was due to a number of different factors. As I understand it, the Gulf War went as well as it did because of superb work by the armed forces, and because we had broad international support and limited objectives. Kosovo went well, at least for us, for the same reasons, and of course because we fought from the air and really paid attention to the follow-up. Ronald Reagan's wars -- the overt ones, at any rate -- were all against tiny countries who could not possibly have put up any resistance to our army. (E.g.: Grenada; Panama.) That was deliberate: the country was traumatized after Vietnam, and while I wished that we could get over it without having to rack up cheap victories against insignificant opponents, Ronald Reagan felt differently.

Even then, though, it would have been worthwhile for Beinart to pay more attention than he seems to have paid to the wars we sponsored in Central America, which were neither easy nor beneficial to the people who lived in the countries where our proxies fought. Thinking about the plight of a farmer who is forced at gunpoint to serve as a guide by one side and then shot as a collaborator by another when all he ever wanted was to work his fields in peace, or of villages burned to the ground after their inhabitants had been massacred, would have been a useful corrective to the idea that wars are easy and painless.

Noting that war is, in fact, hell, and that when it seems easy, that's generally due to some combination of very hard work, massive military superiority, and sheer blind luck, is an easy lesson to draw -- and, frankly, the fact that Beinart had to learn it the hard way, after an error of this magnitude, is as good an example as any I can think of of why I think there's something badly wrong with the writers of editorials and columns in the mainstream media. But there's another, deeper problem, which I will approach in a somewhat roundabout way.

Back in 1983, I sat in on a conference on women and social change. There were fascinating people from all over the world, women who had been doing extraordinary things in their own countries, and who had gathered together to talk it through; and I got to be a fly on the wall.

During this conference, there was a recurring disagreement about the role of violence in fighting deeply unjust regimes. On one side were the women from India, who argued against the use of violence, generally on Gandhian grounds. On the other were many of the women who lived under deeply unjust regimes; I recall, in particular, the South Africans arguing that however laudable nonviolence might be, their situation was sufficiently desperate that they could not afford the luxury of waiting for nonviolence to work.

It seemed to me that at the heart of this disagreement was this one fact: that the women from India were from a country that had already achieved independence, and were living with the problems that came afterwards, whereas the women from South Africa were trying to achieve that self-government in the first place. The South Africans seemed to think that the women from India had forgotten what it was like to be subjugated:

We need to win our freedom as quickly as possible, they seemed to say. We realize that it would be preferable to win that freedom in the best possible way. If we could win it just as quickly through non-violent means, we would surely do so. But you would not ask us to wait if you really understood what it is like to live in slavery.

By contrast, many of the arguments made by the Indians turned on the effects that achieving self-government through violence had on one's own people:

Don't do this, they seemed to be saying: once you win your freedom, you will find that you and your people have grown accustomed to settling disputes by force and to demonizing your opponents. Think now about how to use the struggle you are waging to teach yourselves how to become citizens and to practice self-government. Do not wait until you win your independence to discover that self-government requires not just political power, but political responsibility.

What made this argument so fascinating and painful to watch was that it was so easy to see both points of view. Who could possibly deny the justice of either side? And yet I thought the Indian women were right. I did not think that they had forgotten what it was like to be oppressed. I thought they were warning the others off a mistake that they knew would be tragic, however comprehensible it might be. And I had just returned from Israel, where I had spent a lot of time thinking about the many, many ways in which completely comprehensible failures can echo down through the generations.

While I was in Israel, I had also wondered what would happen to all those Palestinian kids who had grown up in refugee camps in Lebanon, who had, as best I could tell, been taught a lot about RPGs and nothing whatsoever about how to function in a world in which conflicts are not settled by violence. I found it unforgivable that the Palestinian leadership that ran the camps seemed to have given no thought to the question: how can we bring these children up to be responsible citizens of any future state?

And besides these thoughts, when the Indian women spoke I thought I could see the partition of India, and the attendant massacres in which hundreds of thousands of people died, sitting on the Indian women's shoulders like a constant silent familiar, casting its shadow over every word.

So one thing I thought that the Indian women saw was this:

Violence is not a way of getting where you want to go, only more quickly. Its existence changes your destination. If you use it, you had better be prepared to find yourself in the kind of place it takes you to.

And another was this:

liberation is not just a matter of removing an oppressive government. It can seem that way when you live under tyranny. Nothing is more comprehensible than people living in apartheid South Africa, or under Saddam, thinking: if only that government were removed from power, things would be better. They would have to be. After all, how could they possibly be worse?

Unfortunately, there are almost always ways in which things could be worse.

Thomas Hobbes, who actually lived through a civil war, believed that to escape from "the war of all against all", it was necessary to grant a monarch unlimited sovereignty, and that living under such a monarch was preferable to living in a state of war and anarchy. I am not a Hobbesian, in part because I do not believe that those are our only two choices. But I've never been sure that if we had to face that choice, his answer wasn't the right one.

The absolute monarch, according to Hobbes, does more than protect us from all our other enemies. He provides us with a clear answer to the question: whose word is law? Whose will governs? Hobbes thinks that that answer has to be as clear as possible, since if there is any ambiguity about it, even people who agree on the need to live together under the rule of law will end up fighting about its interpretation.

Suppose, for instance, that everyone in some country agreed about the desirability of living under a democracy, and that an election were held. Does it follow that everyone would accept the winner of that election as legitimate? Only if there are no questions about its fairness: about who really won. But there are always questions about the fairness of elections: reasons to wonder whether a ballot box here and there wasn't stuffed, or voting machines tampered with, or candidates silenced, or voters intimidated.

Hobbes wasn't considering democracy, of course. But he did think that there would always be similar questions about laws and political structures, and that in any situation like this, people would recognize how much turned on who got political power, and they would be willing to fight to make their interpretation prevail. And the only thing that could prevent them from doing so was a clear and acknowledged sovereign whose word would settle such disputes.

As I said, I think Hobbes was wrong, and that we have more choices than anarchy or tyranny. But to be willing to accept and abide by established procedures for the resolution of conflicts, even when your side loses in ways that you think are unfair, presupposes a lot. In particular, it presupposes both allegiance to those procedures, and the confidence that the price of losing will not be more than you can bear.

Both of these conditions exist in the US, which is why the Democrats did not go to war over the 2000 election. But they are not universal. They are an extraordinary human creation which we too easily take for granted. But we should never forget how astonishing it is that people vying for power are willing to concede even when they believe that the rules have been broken, out of respect for the rule of law and for courts they believe to be profoundly in error.

In many countries, there are no established procedures for resolving conflicts, and certainly none that command the kind of allegiance that would lead people to yield even when they believe that they deserve to have won. In those countries it will always be tempting to think: well, this election was stolen from us, and this year-old Constitution is unfair; why not fight for a better one? Wouldn't our opponents do the same?

This is especially likely in a country in which the price of losing a political struggle has always been not just being in the minority party in Congress, but death or subjugation. And it takes a long time to learn to trust that losing power will not cost you your life or your freedom, when all your experience to date has taught you the opposite.

When you use force to liberate a country, like Kuwait, that has only been occupied for a short time, you can hope that its people will accept their previous government, and that whatever made that government function in the past will have survived. But when you liberate a country like Iraq, a country whose people have been brutalized, you risk loosing Hobbes' "war of all against all" on its people. You remove the sovereign who has kept that war in check, without thereby creating any of the political virtues that allow alternate forms of government, like democracy, to function.

This is why, when I read Beinart's piece, I thought: the South African he quotes -- the one who said that "if the United States were a different country, it would help the African National Congress liberate South Africa by force" -- was wrong. Force is not just an alternate way of getting to liberation; it changes everything. And liberation is not just a matter of removing an oppressive regime; it is a matter of creating a country populated by citizens who are, by and large, willing to set aside the idea of resolving conflicts by force and to respect the laws, even when they are imperfectly applied.

For this reason, the problem with that South African's vision is not just that "we lack the wisdom and the virtue to remake the world through preventive war." That's true, but it doesn't get to the heart of the problem, namely: that preventive war is not a way of remaking the world in the ways the South African and Beinart imagine.

Saying that the problem is that we lack the wisdom and virtue to do this is like saying that the problem with the USSR in the 30s was that Stalin was not sufficiently wise and virtuous to really make totalitarianism work for the people of Russia. That Stalin was neither good nor wise is beyond question. But to focus on his personal failings is to miss a broader point: that totalitarianism itself is bound to fail to do right by those who live under it.

(There are other reasons why I think that invading a country in order to create a democracy is bound to fail. I explained some of them here. But these are the two that Beinart's piece brought to mind.)

#shouldread #weekendreading #strategy #moralreponsibility

Philosopher Alex Rosenberg's actions are incomprehensible...

Philosopher Alex Rosenberg's actions are incomprehensible until you realize that he believes and desperately desires to convince us that there are no such thing as human beliefs or desires. Also: That Henry Kissinger is a bad man. You see the problem? The neurology level is useless if you want a better theory than the folk theory of mind. The behavioral economics level may be becoming useful. But for the life of me I do not see what Rosenberg has to add here. His book begins with a big song-and-dance about how narrative military history is useless because the Germans' opponents were flummoxed all four times the Germans attacked at Sedan between 1870 and 1940, thus���he claims���proving that it is impossible to learn lessons from narrative military history. It's clear why one might think the French (and their allies) failed to learn anything useful from narrative military history. It is much less clear why Rosenberg is so sur his example shows that the Germans- failed to learn from narrative military history: Alex Rosenberg: _How History Gets Things Wrong: "The Kaiser wasn���t thinking about anything at all when he gave the 'blank-check' to the Austrians. He didn���t have any desires about how matters should turn out, or any beliefs about how to organize things to make them turn out that way. He didn���t because no one has such thoughts...

...Thoughts [are] mostly non-conscious and not available to introspection... neural processes that drive behavior (without having any content...), including what the Kaiser did. But trying to locate what he believed and wanted, even roughly and inexactly, in contentless neural circuitry firing, is a fool���s errand.... Kissinger doesn���t help us grasp anything, because he thought he could get into the heads of the Talleyrand, Metternich, Castlereagh, and the Tsar, to understand what went on at the Congress of Vienna, and use the knowledge to craft American foreign policy for Richard Nixon and his successors. The results were predictably awful: he got most things wrong and the result was untold human suffering. Chalk it up at least as much to the theory of mind as to Henry Kissinger���s hubris....

Our whole culture and every civilization that we have any record of is constructed on the rickety foundations of the theory of mind.... My book is a plea that when we try to mitigate the worst features of human interaction, to design better institutions, control an uncertain future, we try to use theories that have a chance of being on the right track instead of the theory of mind...

#shouldread #cognitive

Isaiah Andrews and Maximilian Kasy: Identification of and...

Isaiah Andrews and Maximilian Kasy: Identification of and Correction for Publication Bias: "Some empirical results are more likely to be published than others. Selective publication leads to biased estimates and distorted inference. We propose two approaches for identifying the conditional probability of publication as a function of a study���s results...

...the first based on systematic replication studies and the second on meta-studies. For known conditional publication probabilities, we propose bias-corrected estimators and confidence sets. We apply our methods to recent replication studies in experimental economics and psychology, and to a meta-study on the effect of the minimum wage. When replication and meta-study data are available, we find similar results from both...

#shouldread #minimumwage #equitablegrowth #cognitive #statistics

Gilboa et al. here seem to me to pretty much get it wrong...

Gilboa et al. here seem to me to pretty much get it wrong.

The right way to talk about what is to be called ���rational��� is to imbed the problem of thinking in its proper context. I think thought should proceed thus:

Do we have time and resources to gather more information before we have to make a decision? If the answer to this question is ���yes���, we then face a second question:

Would gathering more information increase our knowledge enough to make it worthwhile to do so before making our decision? Answering that question requires very un-Bayesian modes of thought. But that question must be answered. And, having answered it, we either go and gather more information or we proceed to question:

Are we playing some kind of game against nature, or are we playing against another mind? If the answer is ���we are playing against nature���, then it is appropriate to go full Bayesian. If the answer is ���we are playing against another month���, then there is yet another question:

What is the other mind that we are playing against thinking that makes it willing to enter into this strategic interaction with us? The answer will probably involve: ���at least one of the two of us is wrong in our understanding of the situation������as Warren Buffett says: ���if you do not know who is the fool in the market, you are the fool in the market���. Attempting to understand the implications of this question also leaves us down very un-Bayesian roads of thought. But understanding the implications of this question is essential to making a rational assessment of the situation.

My problem with Gilboa et al. is that their criticisms of Bayesian Savagery do not provide any gruel at all to nourish us and thus help us in our task of figuring out what to do when Bayesian Savagery breaks down, either for information-gathering or for other-mind reasons: Itzhak Gilboa, Andrew Postlewaite, and David Schmeidler (2009): Is It Always Rational to Satisfy Savage���s Axioms?: "To explain our notion of rational choice, consider the following scenario. You are a public health official who must make a decision about immunization of newborn babies. Specifically, you have a choice of including another vaccine in the standard immunization package. This vaccine will prevent deaths from virus A. But it can cause deaths with some probability. The exact probabilities of death with and without the vaccine are not known. Given the large numbers of babies involved, you are quite confident that some fatalities are to be expected whatever your decision is...

...You will have to face bereaved parents and perhaps lawsuits. Will it be rational for you to pick prior probabilities arbitrarily and make decisions based on them? We argue that the answer is negative. What would then be the rational thing to do, in the absence of additional information? Our main point is that there may not be any decision that is perfectly rational. There is a tension between the inability to justify any decision based on statistical data, scientific research and logical reasoning on the one hand, and the need to make a decision on the other. This tension is well recognized and it is typically resolved in one of two ways. The first is the reliance on default choices. If the choices that can be rationally justified result in an incomplete preference relation, a default is used to make decisions where justified choice remains silent. For example, the medical profession suggests a host of ���common practices��� that are considered justified in the absence of good reasons to deviate from them. The second approach is to avoid defaults and to use a complete preference relation that incorporates caution into the decision rule. For example, dealing with worst-case scenarios, which is equivalent to a maxmin approach, can be suggested as a rational decision rule in the face of extreme uncertainty...

#shouldread #cognitive #statistics #decisiontheory #Bayesian

Fairly Recently: Must- and Should-Reads, and Writings... (November 20, 2018)

1. Review of "Capitalism in America: A History" by Alan Greenspan and Adrian Wooldridge: Alan Greenspan and Adrian Wooldridge���s ���Capitalism in America: A History��� argues that it is the American love and embrace of capitalism, the resulting entrepreneurial business culture, and the creative destruction inherent in the capitalist-market system that have given America its special, unique edge in economic wealth...

Across the Wide Missouri: FiveThirtyEight's ultimate Thanksgiving dinner menu is : "Tofurky... Frog eye salad... Jell-O salad... Yorkshire pudding... Snickers salad...

175 years ago Friedrich Engels put his finger on the major flaw in economics that Paul Romer has tried to repair over his career: Friedrich Engels (1843): Outlines of a Critique of Political Economy: "According to the economists, the production costs of a commodity consist of three elements: the rent for the piece of land required to produce the raw material; the capital with its profit, and the wages for the labour required for production and manufacture.... A third factor which the economist does not think about���I mean the mental element of invention, of thought...

I would find the wise and public-spirited Ricardo Haussmann more convincing here if he'd had an explanation for why mandated wage compression by John Dunlop in the U.S. during World War II was not a huge success: Ricardo Hausmann: How Not to Fight Income Inequality: "Trying to combat income inequality through mandated wage compression is not just an odd preference. It is a mistake, as Mexico's president-elect, Andr��s Manuel L��pez Obrador, will find out in a few years, after much damage has been done...

I highlighted this two years ago. I am highlighting it again, as I think it has not received the attention it deserves. Ernest Liu: Industrial Policies in Production Networks: "Many developing countries adopt industrial policies favoring selected sectors. Is there an economic logic to this type of interventions?..

Seth Godin: Throat-Clearing: "Begin in the middle. The first paragraph, where you lay out what's about to happen. The half-apology you use to preface your comments at the meeting. The email that takes a paragraph or two to get to the point���. You can skip those. Throat clearing is a good way to make sure that people are looking at you. And an even better way to give yourself time to collect your thoughts, to indulge your fears or to get yourself warmed up. But we're already looking at you. We've clicked through to your link, given you the microphone, read your note���. Say all that stuff in your head, but, we'd really like to hear the best part first. Begin in the middle...

Another very good "Equitable Growth in Conversation" piece: Ioana Marinescu, Herbert Hovenkamp, Kate Bahn, and Michael Kades. In modern antitrust policy, the monopoly and the monopsony analyses need to proceed on two separate tracks: Equitable Growth: In conversation with Herbert Hovenkamp and Ioana Marinescu: "You can���t just do a workup on the product side and then assume you���ve gotten all the work done. If you���ve got a special class of employees, like computer engineers, those engineers might work for firms that don���t compete with each other at all on the product side, and that means that that market will end up having different boundaries than the product market has for those same firms...

Equitable Growth's Will McGrew makes a good catch here, and direct us to Brendan Greely: Will McGrew: Weekend Reading: ���Monopsony and Mobility��� Edition: "Brendan Greely of the Financial Times dives into another aspect of the mobility divide: social capital. Using frequent Equitable Growth guest authors and economists Raj Chetty, Nathaniel Hendren, and John Friedman���s recently published Opportunity Atlas as a starting point, Greely explains why relationships and communities are more important than the mere availability of jobs in determining economic mobility. Beyond enhancing a neighborhood���s services and amenities such as public schools, growing up in proximity to people with a diversity of highly paid jobs provides children with role models and connections to higher quality jobs and more numerous economic opportunities... #equitablegrowth

It may finally be the time that we get some traction on better measures of economic growth and prosperity than GDP. So go back and reread this from 290016: homas Piketty, Emmanuel Saez, and Gabriel Zucman: Distributional national accounts: Methods and estimates for the United States: "This paper combines tax, survey, and national accounts data to estimate the distribution of national income in the United States since 1913. Our distributional national accounts capture 100% of national income, allowing us to compute growth rates for each quantile of the income distribution consistent with macroeconomic growth... #economicgrowth

This from eight years ago is still the best thing I have seen about "sustainability" and its proper role in economic analysis: Kenneth J. Arrow, Partha Dasgupta, Lawrence H. Goulder, Kevin J. Mumford, and Kirsten Oleson (2010): Sustainability and the Measurement of Wealth: "We develop a consistent and comprehensive theoretical framework for assessing whether economic growth is compatible with sustaining well-being over time. The framework focuses on whether a comprehensive measure of wealth���one that accounts for natural capital and human capital as well as reproducible capital���is maintained through time... #sustainability #equitablegrowth

Getting deeply into the weeds on whether much observed social mobility is actually error in measuring "true status". The answer ape to be "no": Martin Nybom and Kelly Vosters: Intergenerational Transmission of Socioeconomic Status: "There is no simple law of mobility: In 2014, Gregory Clark proposed a ���simple law of mobility��� suggesting that intergenerational mobility is much lower than previously believed, and relatively uniform across countries.... This column tests this... using US and Swedish data... no evidence of a rise in intergenerational persistence and no evidence of uniformity across countries...

One might, naively, think that the economies of scale that companies like Wal-Mart possess should redound to the benefit of workers as well as consumers. More efficiencies from economies of scale should leave a bigger pie for everyone else, which would be shared, right? Apparently not. When a business earns more by selling to large buyers, its workers wages appear not to go up but to go down. Something to watch very closely. Sharon Nunn sends us to Nathan Wilmers: Sharon Nunn: Big Businesses Push Down Prices, and Perhaps Wages: "As large firms... command increasing market share in the retail industry, they narrow the field of buyers for companies that make and move consumer products.... [Nathan] Wilmers found that since the late 1970s... a 10% increase in [corporate] earnings that depend on larger buyers is associated with a 1.2% decline in wage growth... #equitablegrowth #inequality

Dan Davies on financial fraud is certainly the most entertaining book on Economics I have read this year. Highly recommend itcold Chris Dillow: Review of Dan Davies: Lying for Money: "Squalid crude affairs committed mostly by inadequates. This is a message of Dan Davies��� history of fraud, Lying For Money.... Most frauds fall into a few simple types.... Setting up a fake company... pyramid schemes... control frauds, whereby someone abuses a position of trust... plain counterfeiters. My favourite was Alves dos Reis, who persuaded the printers of legitimate Portuguese banknotes to print even more of them.... All this is done with the wit and clarity of exposition for which we have long admired Dan. His footnotes are an especial delight, reminding me of William Donaldson. Dan has also a theory of fraud. 'The optimal level of fraud is unlikely to be zero' he says. If we were to take so many precautions to stop it, we would also strangle legitimate economic activity...

books #finance

Brilliant, as usual from Costa Shalizi: Cosma Shalizi: Alien Failure Modes of Machine Learning: "They have such alien failure-modes, and... don't have the sort of flexibility we're used to from humans or other animals. They generalize to more data from their training environment, but not to new environments.... If you take a person who's learned to play chess and give them a 9-by-9 board with an extra rook on each side, they'll struggle but they won't go back to square one; AlphaZero will need to relearn the game from scratch... #riseoftherobots #cognition

I really do not know who the audience for this is supposed to be. Addressing the Trump Administration is a pointless waste of time. And this is not written to give Nancy Pelosi, Mitch McConnell, Kevin McCarthy, and Chuck Schumer ideas as to how they can constrain Trumpets idiocy: Robert Z. Lawrence: How the United States Should Confront China Without Threatening the Global Trading System: "The Trump administration���s willingness to violate trade rules to maximize its negotiating leverage is undermining its most important and most legitimate objective... #globalization #orangehairedbaboons

Across the Wide Missouri: FiveThirtyEight's ultimate Than...

Across the Wide Missouri: FiveThirtyEight's ultimate Thanksgiving dinner menu is: Tofurky... Frog eye salad... Jell-O salad... Yorkshire pudding... Snickers salad: Walt Hickey*: The Ultimate Thanksgiving Dinner Menu

175 years ago Friedrich Engels put his finger on the majo...

175 years ago Friedrich Engels put his finger on the major flaw in economics that Paul Romer has tried to repair over his career: Friedrich Engels (1843): Outlines of a Critique of Political Economy: "According to the economists, the production costs of a commodity consist of three elements: the rent for the piece of land required to produce the raw material; the capital with its profit, and the wages for the labour required for production and manufacture.... A third factor which the economist does not think about���I mean the mental element of invention, of thought...

...alongside the physical element of sheer labour. What has the economist to do with inventiveness? Have not all inventions fallen into his lap without any effort on his part? Has one of them cost him anything? Why then should he bother about them in the calculation of production costs? Land, capital and labour are for him the conditions of wealth, and he requires nothing else. Science is no concern of his.

What does it matter to him that he has received its gifts through Berthollet, Davy, Liebig, Watt, Cartwright, etc.���gifts which have benefited him and his production immeasurably? He does not know how to calculate such things; the advances of science go beyond his figures. But in a rational order which has gone beyond the division of interests as it is found with the economist, the mental element certainly belongs among the elements of production and will find its place, too, in economics among the costs of production. And here it is certainly gratifying to know that the promotion of science also brings its material reward; to know that a single achievement of science like James Watt���s steam-engine has brought in more for the world in the first fifty years of its existence than the world has spent on the promotion of science since the beginning of time...

#shouldread

I highlighted this two years ago. I am highlighting it ag...

I highlighted this two years ago. I am highlighting it again, as I think it has not received the attention it deserves. Ernest Liu: Industrial Policies in Production Networks: "Many developing countries adopt industrial policies favoring selected sectors. Is there an economic logic to this type of interventions?...

...I answer this question by characterizing industrial policy in production networks. Market imperfections compound through backward demand link- ages, causing upstream sectors to be the sink of imperfections and have the largest size distortions. My key finding is that the distortion in sectoral size is a sufficient statistic for the social value of promoting that sector; thus, there is an incentive for a well-meaning government to subsidize up- stream sectors. Furthermore, aggregate effects of sectoral interventions can be simply summarized by the cross-sector covariance between my sufficient statistic and policy spending. My sufficient statistic predicts sectoral policies in South Korea in the 1970s and in modern-day China, suggesting that sectoral interventions might have generated positive aggregate effects in these economies...

#shouldread