Tyler Cowen's Blog, page 430

Assorted links

1. GMO labeling and rent-seeking.

2. On-line education to become an Orthodox rabbi.

3. What do you see when you look out the NYC-D.C. Amtrak window?

4. This guy wants to minimize the number of incumbents, as a way of jumping off his indifference curve.

5. Scientific psychological study of the NYT paywall.

6. Are asteroid belts part of The Great Filter?

What are these people really up to?

No wonder they don’t have a clear sense of what “austerity” means:

Mrs Brooks told the Leveson Inquiry earlier this year that Mr Cameron signed some of his missives to her “LOL” – mistakenly thinking it meant “lots of love” rather than “laugh Out loud”.

Here is more.  The article is puzzling throughout.

Political sorting in social dating relationships

Gregory Huber and Neil Malhotra have a new research paper Political Sorting in Social Relationships: Evidence from an Online Dating Community (pdf).  Here is one useful bit:

Relative to the average standard deviation by respondent for each outcome…shared ideology increases interest in responding by 12% of that amount, interest in long-term dating by 16%, and assessments of shared values by 20%.  By the same comparison, shared lack of political interest increases assessments of likelihood of responding by a statistically significant 18%, but has more modest…effects on interest in long-term dating and assessments of shared values, respectively.

There is much more data in this paper, including a discussion of which issues matter to people the most.  Here is one upshot:

…online dating pairings where communication takes place display greater political homogeneity than the population as a whole.

When the hoarding equilibrium sets in

There were no laws against price gouging. But the petrol stations knew that every single customer would hate them if they were the only station to let prices rise such that supply and demand came back into equilibrium. And so because the stations didn’t gouge, we were in a terrible equilibrium where everyone’s rational response to the below-clearing price was to hoard, because there was real risk that the stations would run out of fuel. And there was real risk of running out of fuel because of the hoarding. Breaking the hoarding equilibrium would have required a coordinated price hike that both allocated fuel to its highest valued uses and told everyone that there would be fuel available for them in an emergency if they really really needed it. That latter part is crucial – it kills the incentive to hoard.

That is from Eric Crampton.  Eric makes a further point.  Even in the absence of laws against price gouging, individual stations may be reluctant to raise prices and incur the wrath of customers.  Yet if all stations would raise prices, and markets would clear, consumers would know they could get emergency gasoline if they had to.  That would help break the hoarding equilibrium, if done collectively.  The real market failure may be the unwillingness to raise prices.

Addendum: Here is what we are getting: “He also said the Defense Department was sending in 12 million gallons of fuel to be pumped from five mobile stations. “They’ll have a 10-gallon limit,” the governor said. “The good news is, it’s going to be free.”

Enable talk gloves

Four Ukrainian students have created gloves that allow speech- and hearing-impaired people to communicate with those who don’t use or understand sign language. The gloves are equipped with sensors that recognize sign language and translate it into text on a smart phone, which then converts the text to spoken words.

That is from Time’s list of the notable inventions of 2012, the link to that item is here, the entire series starts here.  For the pointer I thank Matthew Petersen.

Assorted links

1. How fast are driverless cars on the race track?

2. The Vatican newspaper runs five articles about the new James Bond film.

3. Renders the Taco-Copter totally obsolete.

4. BusinessWeek profile of Scott Sumner.

5. Biafra was also not a good idea.

6. Acemoglu and Robinson respond to Subramanian, and good Flickr photostream of North Korea, and is this guy, a possible defector from the West, tweeting from North Korea?

From Nick Rowe

“Cyclically-adjusted deficit” is not a macroeconomic concept

It shouldn’t be, anyway.

Tyler Cowen says: “These cyclically adjusted measures are useful information and should not be discarded, but I don’t wish to use them as the sole or main or dominant source of information about the stance of fiscal policy.”

I’m going to make a stronger claim. One I have made before.

Consider two countries. Both countries are identical, except:

Country A has an activist government, which likes to be seen as “doing something” when there’s a recession. It rushes around passing new laws increasing government spending and cutting taxes whenever there’s a recession.

Country B has a lazy government, which likes the idea of “fire-and-forget” fiscal policy. It passes a law before the recession, which ensures that government spending automatically rises and taxes automatically fall whenever there’s a recession. Then it goes back to sleep.

Both countries have exactly the same levels of government spending and taxes during a recession (and during a boom too).

A recession hits both countries. The accountants measure the “cyclically-adjusted deficits” (“structural deficits”) in both countries. They ask “under existing tax laws and spending laws, what would the deficit be if there were no recession?” They conclude that country A has a big cyclically-adjusted deficit, and country B has none.

But there is no macroeconomic difference between the two countries.

You cannot say that country A had a good “countercyclical fiscal policy”, and country B didn’t. They had exactly the same fiscal policy. They just implemented it in different ways.

A second example. Country C has a strong system of automatic stabilisers, including a steeply progressive tax system, but increases tax rates in a recession. Country D has a flat tax system, but fails to cut taxes in a recession. They end up with exactly the same taxes in a recession. C has imposed “austerity”, and created a ‘cyclically-adjusted surplus”, and D has not. But there is no macroeconomic difference between the two countries’ fiscal policies. C has sinned by commission; D has sinned by omission.

“Cyclically-adjusted deficit” is a political/legal concept. It is not a macroeconomic concept.

(There might be some important macroeconomic differences between those two ways of implementing fiscal policy: maybe automatic stabilisers work more quickly than activist policies; maybe automatic stabilisers give more certainty about the future and help stabilise expectations better. But you won’t see those differences captured in the cyclically-adjusted deficit number.)

Update: what should replace it? Maybe deficit/GDPgap? Or percentage deviation from a cross-country regression of deficit on GDPgap? Crude, but simple. Still vulnerable to Tyler’s objection that the gap between actual and “potential” GDP is a judgement call. But better than “cyclically-adjusted deficit”, which makes the same judgement call about potential GDP, and then adds a lot of legal/political noise.

The link is here.

Assorted links

1. The pulled report on taxes and the economy.

2. There is no great stagnation: texting while skiing.

3. Some economics articles on natural disasters.

4. Does this elephant speak Korean?  Another story here, and video here.

 

MOOC cheating (model this)

From an email from Coursera:

Several students have contacted me about cases of cheating on the Final Exam. Frankly, why anyone who do this in a course that focuses on learning and offers no credentials, beats me. Students who cheat are really cheating themselves. If you are sure an answer is plagiarized from somewhere else (often easy to determine with a quick web search), you could simply award 1′s everywhere, which amounts to a score of 0. Whether you do that for one question or the whole exam is up to you. If there is any doubt that the student has broken the honor code, you have to give the student the benefit of that doubt. 0 on the whole exam is more significant than on one question. Though again, the stakes here are essentially zero; it’s mostly about self esteem, surely. For truly egregious cases, send me the details (your login id and the Student number (1, 2, or 3) and I can take it from there. Violation of the honor code is cause for expulsion from the class. Expulsion has occurred, in this class and others, I’m sad to say.

Meanwhile, if you want to know how evaluation training and peer grading looked from our side (the instruction team and the folks at Coursera who were making sure the ship stayed afloat), check out my latest post at MOOCtalk.org to see what was going on behind the scenes. Enjoy!

I thank AA for the pointer.

A Bet is a Tax on Bullshit

Nate Silver, whose models give Obama a high probability of winning reelection, has offered one of his critics a bet. “Putting your money where your mouth is,” is a time-honored principle of integrity in my view but the NYTimes Public Editor is very upset. Margaret Sullivan, however, never offers an argument against betting instead treating it as unseemly.

[Betting is] inappropriate for a Times journalist, which is how Mr. Silver is seen by the public even though he’s not a regular staff member.

“I wouldn’t want to see it become newsroom practice,” said the associate managing editor for standards, Philip B. Corbett. He described Mr. Silver’s status as a blogger — something like a columnist — as a mitigating factor…

…When he came to work at The Times, Mr. Silver gained a lot more visibility and the credibility associated with a prominent institution. But he lost something, too: the right to act like a free agent with responsibilities to nobody’s standards but his own.

The closest to an argument against betting is this:

…whatever the motivation behind it, the wager offer is a bad idea – giving ammunition to the critics who want to paint Mr. Silver as a partisan who is trying to sway the outcome.

My best parse of the argument is that by betting Silver has given himself an interest in the election and this hurts his credibility. Nothing, however, could be further from the truth.

A properly structured bet is the most credible guarantor of rigorous disinterest. In order to prove his point, Silver is not required to take the Obama side of the bet! At the odds implied by his model (currently between 3 and 4 to 1) Silver should be willing to take either side of a modest bet. Indeed, we could hold a coin toss, heads Silver takes the Obama side, tails he takes Romney.

In fact, the NYTimes should require that Silver, and other pundits, bet their beliefs. Furthermore, to remove any possibility of manipulation, the NYTimes should escrow a portion of Silver’s salary in a blind trust bet. In other words, the NYTimes should bet a portion of Silver’s salary, at the odds implied by Silver’s model, randomly choosing which side of the bet to take, only revealing to Silver the bet and its outcome after the election is over. A blind trust bet creates incentives for Silver to be disinterested in the outcome but very interested in the accuracy of the forecast.

Overall, I am for betting because I am against bullshit. Bullshit is polluting our discourse and drowning the facts. A bet costs the bullshitter more than the non-bullshitter so the willingness to bet signals honest belief. A bet is a tax on bullshit; and it is a just tax, tribute paid by the bullshitters to those with genuine knowledge.