Tyler Cowen's Blog, page 30

Assorted links

1. Are they talking to us?

2. “Public tolerance of inequality can increase as inequality increases.”

3. Why do entrepreneurial parents have entrepreneurial children?

4. The age profile of drinking.

5. “This is the only way I’ve ever seen poetry become a viable business model.”  And MIE: might the United States become the world’s next leading chess power?

6. Who is Aleksandr Dugin?

7. Arnold Kling on Robert Putnam.

Why Paul Krugman is wrong to oppose the Trans-Pacific Partnership

I agree with much of the economics in his post, though I would frame the points with a different kind of rhetoric.  But I think Krugman is nonetheless wrong to oppose TPP.  You will notice the word “China” does not appear in his argument.  He closes with a question: “Why, exactly, should the Obama administration spend any political capital – alienating labor, disillusioning progressive activists – over such a deal?”  The answer is simple: either this deal happens on American terms, or an alternative deal arises on Chinese terms without our participation.  For rather significant foreign policy reasons we prefer the former, and the pragmatic side of President Obama understands this pretty well.

Addendum: Brad DeLong comments.

Open market operations for negative nominal yield bonds

There are lots of those such securities these days, so what happens when a central bank buys up some with monetary reserves?  An email from Scott Sumner prompted me to address this question more directly than my mere mention from yesterday.  I see a few scenarios, none of which satisfy me:

1. Buying the securities lowers long rates further and depresses the value of the currency, which is broadly stimulatory.  Arguably this would follow from a Keynesian model.

2. Currency determines the price level, not bonds, as in Fama (1980).  Alternatively, old-style monetarists might believe that something like M2 determines the price level.  Either way, we can expect the OMO to raise the price level and perhaps depress the exchange rate as well.

3. Portfolio theory means that the lower rate (indeed negative rate) instruments must have higher liquidity premia.  Buying up higher liquidity instruments with lower liquidity instruments (i.e., currency) ought to be contractionary.  Don’t be fooled by Fama and the monetarists, in a world of credit it is all about liquidity in the broad sense and that in this scenario is going down.

My intuitions are closest to number three, but I am not trying to claim that is being verified empirically.  And oh, there is also #4:

4. If nominal rates are negative, all the action is in the risk premium.  And the effect of this asset swap on the risk premium is????

I would gladly link to the first person to write a serious short paper on all of this.

What sport should your kid play?

After I requested requests, Trey Anastasio asked me:

If a parent were to pick a sport for their child to play competitively, what would you suggest? (factoring in cost, commitment, personal development, opportunities provided in life)

I take this to refer to stardom in high school or college, but not beyond.

I am inclined to select tennis.  It doesn’t cost so much, and you can play for most of the rest of your life, without needing a team to back you up.  It is unlikely to injure you very seriously, although arguably it cultivates an attitude of selfishness.  Various areas of track would be reasonable picks too.  If this is restricted to major team sports, I say baseball, mostly to minimize risk of injury or violence.

That said, my overall sense is that levels of competition in all of these areas have become higher than is socially optimal.  Little League success will suffice for a lot of the gains in terms of learning leadership, discipline, and teamwork.  So I would not wish any of these upon a child.  These endeavors have become academic fundraisers where levels of competition are pushed as high as the talent allows, and too often they have become all-consuming pursuits, in violation of Aristotle’s edicts about moderation.  Sports have gone from a very cheap way of educating your child to a very expensive way, yet another example of unmeasured declining productivity in education.

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.

Who was Corrado Gini?

Corrado Gini, he of the Gini index, was a numbers man, at a time when statistics had become a modern science. In 1925, four years after Gini wrote “Measurement of Inequality of Incomes,” he signed the “Manifesto of Fascist Intellectuals” (he was the only statistician to do so) and was soon running the Presidential Commission for the Study of Constitutional Reforms. As Jean-Guy Prévost reported in “A Total Science: Statistics in Liberal and Fascist Italy” (2009), Gini’s work was so closely tied to the Fascist state that, in 1944, after the regime fell, he was tried for being an apologist for Fascism. In the shadow of his trial, he joined the Movimento Unionista Italiano, a political party whose objective was to annex Italy to the United States. “This would solve all of Italy’s problems,” the movement’s founder, Santi Paladino, told a reporter for Time. (“Paladino has never visited the U.S., though his wife Francesca lived 24 years in The Bronx,” the magazine noted.) But, for Gini, the movement’s purpose was to provide him with some anti-Fascist credentials.

There is more here at the Jill Lepore review of the new Robert Putnam book (and other books), via the excellent Kevin Lewis.  And please no, I am not trying to suggest that an interest in inequality numbers is fascist in orientation, I simply find such historical tidbits fascinating.  Here are further sources on Corrado Gini, not surprisingly he was into eugenics too.

Assorted links

1. Who are the most important persons in an image? (pdf)

2. The age of creative ambiguity.  And how students really consume online education.

3. Ross Douthat on Rubio-Lee.

4.  More on whether China is going to collapse.  And is the driverless snowmobile already a reality?  Enforcing an OLG model for the Dalai Lama.

5. What is the economic and labor market future of Hawaii?

Are open market operations contractionary when securities have a negative yield?

Just asking…

Theory would seem to suggest yes the swap is contractionary (though see Evan Soltas), but so far European QE seems to have had a mildly stimulative effect, mostly through the exchange rate.

In any case someday you can tell your grand kids about this.

Why is the Greek government so popular with left-wingers?

Even though the Greek electorate has elected left-wing leaders, the “the Greek government” hasn’t actually changed all that much.  It is still dysfunctional, corrupt, and very protective of special interests in nationally harmful ways.  Yet I find that if I criticize the Greek government on Twitter I receive many angry, self-righteous comebacks, often but not always from Greeks and usually with a left-wing slant.

One reason the Greek government is so popular with “the Left” has to do, I think, with theories of social change.  I often read or hear it suggested that, if only the truth is spoken in forthright, galvanizing terms, beneficial social change will follow.  This was a common meme in Krugman’s columns for instance over the years.  The claim was that Obama needed to be more like FDR and mobilize a coalition around a commonly articulated series of truths.  I don’t think it was ever promised this would succeed right away, due to Republican intransigience, but it has been portrayed as a good long-run investment in political change through the education of the citizenry.

The new Greek government of course has done this and more.  They have rather flamboyantly staked out extreme positions, insulted their opponents, and warned of the doom that will follow if renegotiations were to run along the lines of EU law rather than the New Old Keynesian economics.  They told their citizenry how much they were standing up for them, and how much this was a moral clash of progressive good vs. austerity evil, with the values of democracy and national sovereignty (supposedly) on the side of good.

The thing is, it’s turned out to be a total catastrophe.  As I had suggested early on, there is, in the ruling Greek coalition, no Plan B.  Germany and especially Spain just held tight on the negotiations and the Greek government more or less had to fold, not even wanting to vote on the negotiated plan.  That plan then failed to receive European approval, nor has Greece drummed up much general support from the other peripheral countries, and now no one knows what to do next.  The ECB, IMF, and others still have Greece “by the balls,” to cite one colloquial expression.  They’re still trying to spin that “the institutions” are not the Troika, but they don’t talk much about liberating the economy as a means of increasing exports.  It seems Emergency Liquidity Assistance may be up for review.  Oops.

The Greek government also riled up its citizens and now doesn’t know how to deliver anything satisfactory to them, to the detriment of political stability.  The latest irresponsible plan is to threaten a referendum on a new government, a new economic plan, or in one case even a referendum on euro membership was mentioned.  Message discipline is scarcely to be seen.

All of that is simply painting the Greek government into a corner all the more, since a referendum will simply heighten the demands for mutually inconsistent outcomes.  Signs of broader eurozone recovery, and the relative success of QE in talking down the value of the euro, have almost completely removed the bargaining power of Syrizas, or so it seems as of early March.

As I’ve said before, these people ruling Greece are The Not Very Serious People, and they are increasingly acquiring a reputation as such within the rest of the EU and eurozone.

All of this reminds me of the wisdom of Dani Rodrik and his propositions about the incompatibility of democracy, national sovereignty, and global economic integration.  Angry words won’t undo those constraints and they are not something you will hear the Greek government mention very often.

Krugman a few times has praised Syrizas for renegotiating the required primary surplus figures, but it seems this is hardly mattering.  Due to plummeting tax collection, the primary surplus is gone in any case, and the agreement with “the institutions” [read: Troika] is not even the main driver of the action here.  Greece needs to take steps to reestablish a higher [read: positive] primary surplus in any case.

The broader lesson is this: if politicians are not “speaking the truth to power,” there are usually some pretty good reasons for that.   As a political strategy, it doesn’t typically work and it is worse than irrelevant as it very often backfires.

The situation is still not beyond repair, but the Very Serious People are serious for a reason.

Japan fact of the day

Japan’s nominal [correction: real] gdp growth for 2014 turns out to be about…zero.

The primary source is here, via Ben MacLannahan.