Tyler Cowen's Blog, page 303

Diane Coyle and Tyler Cowen FT podcast on the economics books of the year

The link is here, (ungated?) emergency link here, It is about an hour long, and here is the premise:

A month ago I [Cardiff Garcia] asked Diane and Tyler each to choose five books released this year that would be fun to discuss. Then I narrowed that list of ten down to five:

1) Worldly Philosopher: The Odyssey of Albert O Hirschman, by Jeremy Adelman

2) The Undercover Economist Strikes Back, by Tim Harford

3) Giving Kids a Fair Chance, by James Heckman

4) How Asia Works, by Joe Studwell

5) America’s Assembly Line, by David Nye

(Worldly Philosopher was the one book included on both lists.)

We discuss these five in the first part of the podcast. In the second part we discuss Tyler’s new book, Average is Over, which is out this week in the US. We then close with some general thoughts about trends in economics books and a teaser of Diane’s own forthcoming book, A Brief and Affectionate History of GDP, scheduled for release early next year.

Here are some of Cardiff Garcia’s thoughts on my own new book, Average is Over:

From Average Is Over, what has stayed with me is that success in the future increasingly will be about managing comfort levels, those of oneself and of others — especially regarding the discomfort that comes with sacrificing personal judgment in favour of better, externally-offered judgment, perhaps submitted by a machine or an algorithm.

The reality of our inferior human judgment will first be resisted, but eventually it will be accepted. The transition won’t be smooth. It won’t be natural. It will lack the romance of the stories we now tell ourselves but will soon disbelieve. Those who do make the transition early will have an advantage over the rest. Trust will be a blurry concept for a while.

In more and more situations, “letting go” will be a better strategy than thinking independently. Sometimes both will be needed. Choosing from these options will be the one (meta) judgment that still matters. With time we’ll get better at it, but only after a period of intense emotional confusion.

I eagerly await Diane’s own work on gdp, as I have been wanting a good book on that topic for some while.

Can a zero lower bound on price movements generate positive inflation during a recession?

From the comments, Ano writes:

I think an additional factor contributing to the “why is there 1.6% inflation” question is the following: The “right” wage offer for each individual worker varies from worker to worker. The distribution of wage offers gets trimmed at zero. So even a distribution that would have a mean below zero in a non-rigidity world can have a positive mean if the distribution gets trimmed at zero. It’s another zero lower bound at work in the labor market!

There is a related Paul Krugman blog post here.

I have several worries about this approach, but my biggest one is this.  Even with truncation, where are so many inflationary pressures coming from in the first place?  Let’s say for instance (to make it easy) that half of the economy is subject to (stifled and truncated to zero) deflationary pressures, and the other half is subject to (non-stifled) inflationary pressures of 3.2%.  To make this easy to talk about, imagine those halves average out to 1.6% inflation.

What does it say about your economy — vis-a-vis the all-important business cycle fact of comovement — if half of the sectors are seeing inflationary pressure at 3.2%?

One option is that those sectors are the victim of negative supply shocks.  I am comfortable with a comparable conclusion, namely that both AD and AS shocks have been important in a variety of recent economic downturns, although I would not use this chain of reasoning to get there.

Another option is that these non-stifled sectors have seen big boosts in demand and thus their prices are rising.  Again, that violates the strong empirical regularity of business cycle comovement.  In a traditional deflationary downturn, virtually all sectors are negatively affected, with a few notable exceptions.  What kind of business cycle would this be, if half the economy is seeing a positive 3.2% worth of demand-side pressures?

Of course the number 3.2%, the division of the economy into halves, and the like are artifacts, to make this easy to discuss on a blog.  But to the extent you make the non-stifled sector of the economy smaller, the shocks hitting it have to be larger, and so on, so that is no easy way out of the basic dilemma.

Here is a detailed look at why eurozone inflation rates are not lower than they are.  Here is a brief look at United Kingdom inflation rates:

1. CPI annual inflation stands at 2.9% in June.

2. Core inflation stands at 2.3% and has not been below 2% in some time.

3. The producer price index is showing 4.2% inflation (see the first link).

Is that being driven by the zero point truncation of nominal wages?  I don’t think so.  By the way, that is about as a clear of a refutation of liquidity trap models as one could expect to find.

Addendum: Arnold Kling offers comment.

The five cognitive distortions of people who get things done

I would call this speculative, but it is nonetheless of interest, let me pull from Jason Kottke:

This is a presentation and therefore missing a bunch of key context, but Michael Dearing’s The Five Cognitive Distortions of People Who Get Stuff Done is interesting reading nonetheless. The five distortions are:

1. Personal exceptionalism

2. Dichotomous thinking

3. Correct overgeneralization

4. Blank canvas thinking

5. Schumpeterianism

That last one is likely a head-scratcher to those of us without economics backgrounds; here’s what Dearing has to say about it:

Definition – sees creative destruction as natural, necessary, and as their vocation

Benefits – fearlessness, tolerance for destruction and pain

Deadly risk – heartless ambition, alienation

*The Empire Trap*

That is the new book by Noel Maurer and the subtitle is The Rise and Fall of U.S. Intervention to Protect American Property Overseas, 1893-2013.  This is an excellent book and somehow the title, while descriptively accurate, does not do justice to its interest and contents.

My favorite part of the book is about the fiscal receiverships applied to various Latin American countries in the early twentieth century.  They were much more extensive than I had realized, and virtually all of them failed.

Here is an interesting sentence in a slightly different direction:

At the turn of the twentieth century, the leaders of American foreign policy believed they had identified poor fiscal conditions as the key factor destabilizing the nations of Latin America.

Do you want your Scott Sumner fact of the day?  In 1931, nominal gdp in El Salvador fell by 37%.

I recommend this book to anyone interested in Latin America, 20th century American foreign policy, extra-territorial relationships, or the history of public finance.

Assorted links

1. On the Coptic Christians in Egypt.

2. Tim Harford on low pay and the rise of the machines.

3. Birds.

4. Jellyfish.

5. In Michoacan, citizens fight the drug cartels.  And Mexico proposes a sugar drink tax.

6. Bangladesh to pursue legal action against Yunus.

7. For better or worse, China’s growth is being propelled by state-run investment.

What would Michael Woodford say?

Or rather what did he say?  He is (justifiedly) considered one of the high priests of monetary expansion.  Yet when it comes to recent events:

 He welcomes the Fed’s intention to taper off its purchases of Treasury securities and mortgage debt, though he says the central bank could be clearer about the rationale.

“As the Fed’s balance sheet gets bigger, the bar to justify additional purchases does start getting higher,” Woodford says. “This could have been made clearer from the beginning, avoiding confusion about the significance of tapering now.”

The full story is here.

What is the least known, great food pilgrimage in the United States?

Could it be Hmong Village, 1001 Jackson Parkway, in north St. Paul?

It is a large indoor market, set in a warehouse, Hmong stores and stalls only, a kind of Eden Center (for those of you who know Falls Church, VA) for Laotians.  The produce and spice and bark sections are amazing.  Along one wall of the warehouse are about fifteen small restaurants, barely more than stalls, mostly Hmong in their cooking but two served authentic-looking Thai food.

Based on visual inspection of the options, we dined at Houaphanh Kitchen, which was superb, don’t forget the dipping sauces.  And I hope you like purple sticky rice.  The other places did not look much worse and there were many more dishes I wanted to sample.  Overall entrees ran in the $4 to $6 range.  Highly recommended.

Here is some discussion, with good photos.  Here are some useful Yelp reviews.

Mormons go Keynesian (?)

That is his title, not mine, I would instead refer to doubling down.  Matthew Crandall reports:

Despite high profile investments and for profit businesses owned by the LDS church, it is primarily dependent on member donations (tithing, or 10% of one’s income) for its operational budget. Tithing revenue has currently flat-lined due to demographic and geographical factors both inside and outside of the United States. As baby boomers retire, their incomes decrease significantly. Families are having fewer kids and younger people are taking longer to get going in their careers. This coupled with high unemployment for the last five years or so (and likely the next five years or more) all have a negative impact on tithing revenue.

Geographically more and more members are joining from poorer places in the world (Africa for example) and even in the rich parts of the world, like Western Europe, it is immigrants who are more likely to join who tend to be relatively poor. This also has negative consequences for tithing revenue.

Meanwhile demands on tithing revenue continue to increase. New missions need new mission homes and rapid church expansion in many remote areas means more chapels and temples that need to be built. Run-away costs in higher education make subsidies at BYU, BYU-Idaho, and BYU-Hawaii go up as well. The spreading of the gospel to every nation and tongue also means an increase in spending on translation and publishing. What strategy does the church have to combat this problem?

…Overall, the church has not engaged in harsh austerity measures. Rather, it has implemented Keynesian economic principles of targeted spending that it hopes will result in church growth and hence a growth in tithing revenue.

For example the resent “surge” in missionary force will likely increase the number of missionaries from around 58,000 to 90,000 by the end of the year. Currently there are already more than 75,000. This resulted in the creation of 58 new missions which will result in a significant increase in expenses for the church.

Presumably the view is that the “[non-animal] spirits” are on their side.  The article is interesting throughout, and for the pointer I thank Paul Edwards.

Assorted links

1. Obituary for David S. Landes.

2. The case that China has escaped the worst.

3. Joel Mokyr on whether technological progress is a thing of the past, and related interesting comments over at Mark Thoma’s.

4. Dean Yang’s reading list for development economics (pdf).

5. Accessing a quantum chip through the internet, and the supermarket moves beyond the great stagnation.

6. Breaking down labor’s declining share.

7. How Emir Kamenica got into college.  And are tenure-track professors better teachers?  (No, it seems.)

Diane Coyle reviews *Average is Over*

The review is entitled “Not Average At All,” here is one excerpt:

Tyler Cowen has followed up the best-selling The Great Stagnation with another profoundly interesting book on the impact of new technology on the economy and beyond. Average is Over: Powering America Beyond the Age of the Great Stagnation picks up the theme of the disruption technological change and the consequent restructuring of business and focuses on the effects on individual jobs and what people might be able to do to safeguard their livelihood.

The rest of the review is here, and it is interesting throughout.  This was one of my favorite sentences:

Steadily, without discussion, a moral framework is becoming encoded into the machines around us, and by the habits of use that are developing.

You can pre-order the book on Amazon here.  On Barnes and Noble here.  On Indiebound.org here.  And from Penguin here.  It is due out this Thursday.