Tyler Cowen's Blog, page 65

How to ensure non-negative nominal interest on your cash

John Cochrane writes:

So, quiz question for your economic classes: Suppose we have substantially negative interest rates — -5% or -10%, say, and lasting a while. But there is no currency. How else can you ensure yourself a zero riskless nominal return?

Here are the ones I can think of:

Prepay taxes. The IRS allows you to pay as much as you want now, against future taxes.
Gift cards. At a negative 10% rate, I can invest in about $10,000 of Peets’ coffee cards alone. There is now apparently a hot secondary market in gift cards, so large values and resale could take off.
Likewise, stored value cards, subway cards, stamps. Subway cards are anonymous so you could resell them.
Prepay bills. Send $10,000 to the gas company, electric company, phone company.
Prepay rent or mortgage payments.
Businesses: prepay suppliers and leases. Prepay wages, or at least pre-fund benefits that workers must stay employed to earn.

Comments section: how many more can you think of?

His conclusion:

The zero bound is not just cash.

More generally, he is discussing work by Kenneth Rogoff.

Thomas Piketty refuses France’s highest honor

France’s influential economist Thomas Piketty, author of “Capital in the 21st Century”, on Thursday refused to accept the country’s highest award, the Legion d’honneur, to criticise the Socialist government in power.

“I refuse this nomination because I do not think it is the government’s role to decide who is honourable,” Piketty told AFP.

“They would do better to concentrate on reviving (economic) growth in France and Europe,” added Piketty, who was once close to the Socialist Party but has distanced himself from the policies of President Francois Hollande.

The link is , via many people in my Twitter feed, including Justin Wolfers and Claudia Sahm.  There is a bit more here.

Happy New Year!

The piece is by Ibrahim Miranda.  Here is a painting by Ruperto Jay Matamoros, my favorite Cuban painter.  Here are further paintings by Matamoros.  Here is an on-line gallery of Cuban art.

Here is how a travel boom might affect the Cuban art scene.

Why I think Greece will leave the eurozone this year or soon thereafter

Matt Yglesias has a good argument to the contrary:

On its face, the political crisis in Greece seems relatively likely to lead to Greece exiting the Eurozone. And why not? Europe’s leading politicians pretty clearly regret having let Greece in back in 1999 (particularly in off-the-record conversations), and Greek voters are clearly fed up with being told what to do by Brussels and Frankfurt. Journalistically, a “Grexit” is certainly the most interesting outcome, so people talk a lot about it, and at this point there are a lot of plausible theories about how it could go. But I think it’s not going to happen. The forces of the status quo will rally, and another grand coalition will lead Greece through several more dreary years of austerity and slow growth.

Nonetheless I think Germany wants them out.  First, I think Germany regards Greece as a kind of cultural and economic cancer for the eurozone, and they don’t want to enshrine the principle that eighty percent default is OK.  Second, Germany sees a fair amount of eurozone stability right now (NB: I’m not saying stability is always good in every way) and has noticed that the contagion effects from the recent Greek troubles have been small.  This is not a bad time to get them out.  Third, Germany is smart and knows that the real problems are Podemos in Spain and just about everyone in Italy and maybe even a few people (or more) in France.  Now is a good time to send splinter parties a message that they had better not mess around with the Troika, and what could do that better than an economic disaster in a recalcitrant Greece?

So I think Germany will play brinksmanship with Syriza and, when the time comes, simply pull the plug and leave them high and dry.

Addendum: Here are some useful graphs.

Los Angeles food bleg

Where to eat?   Probably you can forget the rest, unless you ought to rationally think I do not already know of it.

Wednesday assorted links

1. “Only 11 of 64 games in the TCEC final were decisive, and all of them were won by White.”  Uh-oh.  How far are chess-playing computers from perfection?  Ken Regan on AI across different games.

2. The economics of academic books.  And drunk birds sing worse.  And pictures from the coldest inhabited town.  And what is it like to be a blind film critic?

3. Forthcoming economics books in 2015.

4. ?

5. The truth about bonobos and sex.

6. Matt Yglesias predictions for 2015.  Arnold Kling predictions, I agree about terrorism by the way.  And what Joshua M. Brown and others learned in 2014, recommended, “a woman’s “be ready in 5 minutes” and a man’s “be home in 5 minutes” are about the same.”

Top Ten MR Posts of 2014

Here is my annual rundown of the top MR posts of 2014 as measured by page views, tweets and shares.

1. Ferguson and the Debtor’s Prison–I’d been tracking the issue of predatory fining since my post on debtor’s prisons in 2012 so when the larger background of Ferguson came to light I was able to provide a new take on a timely topic, the blogging sweet spot.

2. Tyler’s post on Tirole’s win of the Nobel prize offered an authoritative overview of Tirole’s work just when people wanted it. Tyler’s summary, “many of his papers show “it’s complicated,” became the consensus.

3. Why I am not Persuaded by Thomas Piketty’s Argument, Tyler’s post which links to his longer review of the most talked about economics book of the year. Other Piketty posts were also highly linked including Tyler’s discussion of Rognlie and Piketty and my two posts, Piketty v. Solow and The Piketty Bubble?. Less linked but one of my personal favorites was Two Surefire Solutions to Inequality.

4. Tesla versus the Rent Seekers–a review of franchise theory applied to the timely issue of regulatory restrictions on Tesla, plus good guys and bad guys!

5. How much have whites benefited from slavery and its legacy–an excellent post from Tyler full of meaty economics and its consequences. Much to think about in this post. Read it (again).

6. Tyler’s post Keynes is slowly losing (winning?) drew attention as did my post The Austerity Flip Flop, Krugman critiques often do.

7. The SAT, Test Prep, Income and Race–some facts about SAT Test Prep that run contrary to conventional wisdom.

8. Average Stock Returns Aren’t Average–“Lady luck is a bitch, she takes from the many and gives to the few. Here is the histogram of payoffs.”

9. Tyler’s picks for Best non fiction books of 2014.

10. A simple rule for making every restaurant meal better. Tyler’s post. Disputed but clearly correct.

Some other 2014 posts worth revisiting; Tyler on Modeling Vladimir Putin, What should a Bayesian infer from the Antikythera Mechanism?, and network neutrality and me on Inequality and Masters of Money.

Many posts from previous years continue to attract attention including my post from 2012, Firefighters don’t fight fires, which some newspapers covered again this year and Tyler’s 2013 post How and why Bitcoin will plummet in price which certainly hasn’t been falsified!

Who are the most influential economists?

Everyone is up in arms over the list supplied by The Economist.  I won’t go through those debates.  Let me just note that for all the talk of wonk this, data that, and Generalized Method of Moments this that and the other, every now and then the best algorithm is simply Asking Tyler Cowen.  So here are, in no particular order, the most influential economists circa 2014:

1. Thomas Piketty

2. Paul Krugman

3. Joseph Stiglitz

4. Jeffrey Sachs

5. Amartya Sen

Basta.  Of course Yellen and Draghi are extremely influential as central bankers, but in the way Paul Volcker was, so that is a different list, albeit a more important one.

I would add several comments:

a. Piketty does very very well for marginal impact in 2014, but probably would/will do less well over broader time spans, even if you think his work will hold up.

b. Krugman is a clear winner for the United States.

c. Stiglitz, Sachs, and Sen have most of their influence outside of the United States.

d. Larry Summers is influential among economists and the intelligentsia and is one possible choice for number six, with Dani Rodrik as another, or maybe drum up the leading Islamic theorist on sukuk.  But Summers is not so influential with casual observers, which in some ways puts him as the opposite of Stiglitz (in his current incarnation).

e. There is no right-wing or center-right economist on the list.  See the EJW symposium on why there is no Milton Friedman today.  Krugman is probably the most politically conservative figure among the top five.

f. Behavioral economics as a whole is quite influential, but with no single dominant figure of influence.  In actuality Cass Sunstein (not formally an economist) and Richard Thaler might globally be #1 in the behavioral area, followed by Daniel Kahneman.

Barkley Rosser on Russia (from the comments)

Yes, they are clearly going to have a recession, and probably a pretty bad one. But, oil prices may well be near their bottom. Russia has a lot of foreign exchange and little sovereign debt and is running a current account surplus, ironically reinforced by western sanctions. Yes, much of the private sector will face refi problems that could still blow up, and that would be the most likely mechanism for a severe collapse worse that Putin and others are forecasting. But, as of now, Putin’s popularity rating has reached an all time high after his latest press conference, 85% approval. You of all people should understand that he has successfully prepared the Russian people for bad times ahead by convincing them that they are in some replay of The Great Patriotic War and the Cold War combined, phoney baloney as that appears to us outsiders. The chances are in fact pretty good that they will tough it out without a major collapse, and the public will be willing to accept the likely privations that will arise due to the impending stagflation.

His comment also discusses Greece.  Alternately, here is Leonid Bershidsky, arguing that a Putin dictatorship is on the way.

Assorted links

1. Cass Sunstein on Partyism, the academic paper.

2. ‘Be relentless in your questioning about the hardware. Astronaut selection is the least of their worries.’  There is more here: “Yet she would be willing to leave her husband behind should a Mars passport bear her name.”

3. A short essay on Mother’s Day.

4. Ten things political scientists know that many of us know too (pdf).  And Argentina werewolf myth debunked.

5. 2014 favorite things from Uncouth Reflections.

6. Sex and the Industrial Revolution.

7. Japan photo essay by Legal Nomads.  She is one of the people I envy.