Tyler Cowen's Blog, page 58

Oh, the Swiss franc went up 39% today

Track it on Twitter.

By the way, it doesn’t seem to be settling at 39% up (18% as of late), but that was the FT headline.  The Economist offers some commentary:

Some analysts speculated that political pressure may have caused the Swiss to abandon the policy; in November last year, a referendum campaign to force the SNB to hold 20% of its balance sheet in gold (which would have made it more difficult to maintain the cap) was defeated. But others felt that the SNB may be expecting the European central Bank to announce quantitative easing in the near future; a shift that would weaken the euro and require even more intervention to cap the franc. In a hole, the SNB may have decided to stop digging.

Swiss equities were down over thirteen percent.  And this means a revaluation of Swiss-franc denominated mortgages, which are plentiful in Eastern Europe, Russia and Hungary come to mind first.  And it raises the question of how much we can trust central bank commitments, looking forward…

Here is summary coverage from Neil Irwin.

A simple theory of some current basketball surprises

Apply a dose of science and big data to a team sport such as basketball.  The big gains will come in cooperation.  Who should take the next shot?, when is a “corner three” worthwhile?, who should play with the second unit, how good is the pick and roll against this opponent?, and so on.  Big data also will bring some gains at the individual level, such as from better training regimens, but those moves were easier to spot in the first place.  The issues involving cooperation are those where simple intuitive observation, of the old school style, will miss a lot of potential improvements.

Cooperative gains are more fragile, however, because everyone has to get the strategy right to reap the benefits (think of Michael Kremer’s O-Ring model).  So the previous champion, San Antonio, has fallen off dramatically because Leonard is injured and Tony Parker is playing like his age (32).  Atlanta suddenly had all the pieces gel, and they now, to the surprise of almost everyone, have the best record in the East.  (They have learned the ball movement and shooting style which San Antonio perfected last year during their championship run, but Atlanta has no big stars.)  Golden State is a positive surprise too, with the best record in the league.  Cleveland has attempted to do “cooperation” (ha) on the terms of its stars, not on the terms of the data, and that experiment has fallen flat.

In Panama I watched an old Lakers game from the 1980s (vs. Portland) and was struck by how tall everyone was, compared to today.  There were fewer surprises that year, and I believe those facts are related.  The three-point shot has made players shorter and more cooperative and arguably increased the value of the coach and his assistants.

Some of these arguments should apply to areas other than basketball, so perhaps a higher value for data-driven cooperation will mean more surprises in the world in general.

Assorted links

1. Stimulus and jobs, hard to have it both ways.

2. How has economic convergence changed over time?

3. Philosophers on why they went into philosophy.

4. Korean adoptees returning home to Korea.

5. Philip Klein’s Overcoming Obamacare is a very useful and well-written guide to alternatives to ACA, although I am not sure the reader comes away especially heartened or optimistic.  Aaron Carroll reviews the book, mostly positively (though he disagrees), Veronique de Rugy has coverage also.

Questions that are rarely asked

Here are some staggering statistics: Since 2006, state and local real investment in highways and streets has fallen by 22%.  Their spending on sewer systems, in real terms, is also down by 22%. And real investment by state and local governments in water systems has fallen by a stunning 34% (chart below).

Meanwhile, over the same period, private real investment by telecommunications and broadcasting companies is up by 13%, according to statistics from the Bureau of Economic Analysis.

Why, then, does President Obama want to load yet another spending burden–muni broadband–on localities that are already stretched too thin to cover their existing obligations?

That is from Michael Mandel.

Bad optics, bad PR, the culture that is Germany

…a public outcry has arisen over a town council plan to house refugees in a building that once served as a Nazi command post at the Buchenwald concentration camp.

Schwerte, a community of 50,000 south of Dortmund, has decided to move 21 refugees into the camp’s only remaining building on the outskirts of the town.

The move comes, town officials say, because all the refugee housing in the town’s jurisdiction is already filled with 200 asylum seekers, and the town doesn’t have the money to purchase temporary structures. According to the town council’s spokeswoman, “The solution is a practical one.”

The full story is here, via the excellent Mark Thorson.

Arrived in my pile

1. Lives of the Laureates: Twenty-three Nobel Economists, edited by Roger W. Spencer and David A. Macpherson.  I know an earlier edition of this book, my favorite piece is the essay by Thomas Schelling but it is a good book throughout.

2. Eric Topol, The Patient Will See You Now: The Future of Medicine is in Your Hands.  I don’t have the time to read a book on medicine just now, but it looks quite interesting, a rebuttal to the claim that consumers are helpless in the world of medicine.

Assorted links

1. How Amazon tricks you into thinking it always has the lowest prices.

2. Most neoclassical economists don’t understand most of these.  I think not one in fifty actually understands the Heckscher-Ohlin theorem, for instance.

3. In one restaurant in China, beautiful people eat for free.

4. The blockchainiacs?

5. 3-D printed drones.

6. British markets in everything: fish and chips chips.

7. In praise of Piketty’s translator.

Alesina and co-authors respond on European fiscal austerity

They have a new NBER working paper on this topic, here is one key part of the abstract:

Fiscal adjustments based upon cuts in spending appear to have been much less costly, in terms of output losses, than those based upon tax increases. The difference between the two types of adjustment is very large. Our results, however, are mute on the question whether the countries we have studied did the right thing implementing fiscal austerity at the time they did, that is 2009-13.

They also consider, and cannot reject, the possibility that the output declines of recent times were due to additional negative variables, such as credit crunches, rather than higher values for the fiscal multiplier.

I predict this paper will be ignored rather than responded to.  For a while now it has been the practice to criticize “austerity” rather than to disaggregate the policies, or describe them with greater specificity, even though that is easy to do.  And it is incorrect to describe this paper as defending austerity, rather I read it as being anti-tax hike, and suggesting that “austerity” is not a very useful concept.

There is an ungated version of the paper here.

*Japan and the Shackles of the Past*

What a strange pattern to find in a book.  The first 264 pp. are good enough but not exceptional and at times boring through being overly familiar.  The last two chapters I found to be a brilliant treatment of recent Japanese politics through the lens of public choice models, probably the best since Karel von Wolferen’s The Enigma of Japanese Power.

Have you wondered what distinguishes the regime of one Japanese prime minister from another?  Which are the different interest groups for and against the consumption tax hike and why?  What accounts for the initial failure and then later resurgence of Abe?  What role does Okinawa play in broader Japanese politics?  Which kinds of regular struggles are played out between the elected officials and the bureaucrats?  What does a sentence like this mean?: “The people around Abe wanted, finally, to stamp out forever the ghost of Tanaka Kakuei.”

How many other books rise to “superb” status but only through their last two chapters?

Here is a review of the book from The Economist, positive but not along the lines I offer above.  Here is a Literary Saloon review.  Here is an FT review by the excellent David Piling.

You can order the book here.  It came out in December 2014 but will make my best books of 2015 list for sure.  For the initial pointer to this book I wish to thank Jim Olds.

How judges, loan officers, and baseball umpires overcompensate for past decisions

The actual title is “Decision-Making under the Gambler’s Fallacy” (pdf) and the authors are daniel Chen, Tobias J. Moskowitz, and Kelly Shue.  Here is one short bit from what is more generally a very interesting paper:

We test our hypothesis in three high-stakes settings: refugee court asylum decisions in the US, a field experiment by Cole et al. (2013) in which experienced loan officers in India review real small-business loan applications in an experimentally controlled environment, and umpire calls of pitches in Major League Baseball games. In each setting, we show that the ordering of cases is likely to be conditionally random. However, decisions are significantly negatively autocorrelated. We estimate that up to 5 percent of decisions are reversed due to the gambler’s fallacy.

To make that more concrete, if a baseball umpire first calls a ball, the next pitch he is more likely to then call a strike.  Of course this may plague your paper refereeing decisions, whether or not you finish your next book, and your dating life.

The original pointer was from Cass Sunstein on Twitter.