Tag: macro

WashPo ‘s Op-Ed on Reinhart-Rogoff annoys me more

Lisa Schweitzer2 Comments

Ok, so my rant at AER prompted gentle readers to note some new items and some things we should consider. Cosma Shalizi, who writes the delightful blog, Three-Toed Sloth, notes that my ire towards AER is a mite misplaced, as the Reinhart-Rogoff manuscript appeared in one of the issues of proceedings done by AER of the economist’s national conference, and those papers are not peer-reviewed. Cosma pointed me to this excellent entry by Victoria Stodden, whose blog I clearly need to follow, on why Reinhart-Rogoff slipped through and how the state of the practice needs to change.

All of her suggestions are spot on, but I particularly like her idea around a site where reviewers can run code easily to replicate results:

This is typically nontrivial, since having the code and data doesn’t guarantee replication is either possible or achievable without significant effort. I have been working on a not-for-profit project called RunMyCode.org which could help reviewers by providing a certification that the code and data do regenerate the tables and figures in the paper. The site provides a web interface that permits users to regenerate the published results, and download the code and data

But still, HANDS ON HIPS, AER. YOU ARE CONSULTANTS TO POWER, A POSITION YOU HAVE CULTIVATED CAREFULLY. WHY does AER still get to hold the position it does as one of the “A” journals when it is publishing issues of papers that have not been reviewed…at all? Shouldn’t people be expected to put an asterix by the title of such an entry? I’m sorry–but DAYUM. If the sociologists did that, it would be yet further proof of their “junk research” in “junk journals.” And…the paper has been cited by economists in economics journals–nearly 500 times. Now, maybe all those cites are critical, but we are still dealing with the fact a paper which was NOT peer-reviewed IS CITED 500 TIMES. Help me understand how this demonstrates a discipline in which the utmost care is taken before policy prescriptions are advocated?

Remember, we are talking about a paper that has such big assumptions–unexplained weighting and dropped cases–that if one of my students presented such a paper in graduate seminar they would get public spanking.

Still more, a paper not peer-reviewed gets treated by the WashPo like it represents a consensus position among economists, no matter how often the paper cited or didn’t cite it. Gentle reader Jesse Richardson sent this op-ed to me, where the Op-Ed board of the WashPo demonstrates their innumeracy and makes excuses for lazy reporting. No, I don’t think Reinhart and Rogoff are responsible for global austerity, which is not global, btw. They saw an important research question in today’s most significant macro-economic debate, and they attempted to address it. That is, in general, the point of policy research, and I’m glad there are people attempting empirical verification of various approaches.

And moreover, academics don’t have that kind of influence. The reason why this paper got lots of play was the Havard + a finding that is convenient for a certain ideological position.

What I do think these researchers are responsible for is their analysis. If you are going to run with the big boys and claim to have a policy-relevant ratio or threshold for a big-deal policy question…you quadruple-check your G-D Excel and you go through a big demonstration of your robustness checks. It’s entirely possible that Reinhart-Rogoff’s original analytical choices are completely defensible. But dang it, in rigorous work, you use robustness checks to provide a range of where the threshold should be…and to preclude looking as though you have a scientifically proven law on your hands when what you really have is a model where your key choices inherently influence the outcomes.

I still stand by what I said yesterday. The researchers were lazy, the economic community was lazy, and the WashPo was lazy in citing this manuscript as though the percentages and ratios cited therein represented some meta-analytical finding resulting from careful aggregation of decades of work. It’s intellectually sloppy, and it’s counterproductive to real policy inquiry and democratic dialogue.

RRRRrrrrrrrrRRRRRR. Like empirical research into macro and macro policy AREN’T HARD ENOUGH, PEOPLE.

Ben Bernake’s speech and why planners should care

Lisa Schweitzer

For a scholarly discipline that has produced some pretty amazing students of globalization (John Friedmann, for one), my discipline rather rigorously puts its head down and refuses to be pay attention to macro changes. For instance, American planners are still obviously focussed on sprawl even though it has, as an issue, lost tremendous salience. Yes, Americans still drive too much and suburbs are still bad, blah blah blah, but the markets that many planners have insisted don’t work properly eventually came around to discipline fringe and housing over-investment. The driving forces prompted planners and architects to become self-appointed sprawl tamers—and what made planning relevant to people who wanted their regions to stop growing during the housing expansion—are mostly gone, and don’t appear to be coming back any time soon.

Ben Bernake’s cautionary speech last week went largely unnoticed, and it shouldn’t have. Because his remarks carry all the hints about of a “recovery” that means major problems for the US, planning, and cities.

There are four reasons why we should be worried:

1) A growing share of US growth will continue to come from overseas, despite Obama’s export plan, at the expense of US employee income growth. That means continued globalization of US companies, and greater competition for US workers who aren’t served very well by their own education system.

2) The pendulum of power in the US has swung sharply from public to corporate, and that power means that problem #1 is not a problem for the people who are driving policy. Profits at the expense of income growth is just fine in that power balance because democratic discontent means little.

3) The emergence of two-tiered workforce means that while the US is adding jobs, it is doing so in such a way that median income will fall. (Not unlike the last “jobless recovery” we got to enjoy.)

So you know all that screaming about adjuncts in the academy and how wrong it is? Sure, it’s wrong, but it’s also par for the course in industries around the US where young workers are typically getting much, much lower starting wages and benefit packages than older workers were hired at.

4) Our balkanized politics offers us no way out soon

To wit; corporate profits have been soaring happily throughout most of the downtown while the US only just added enough jobs to keep people like me from tossing ourselves in front of buses.

Corporations are not people, as Mitt Romney pointed out in his chronic inability to not give a counter-productive sound bite (are he and Larry Summers twins and I’m not aware of it?). Corporations are institutions that already enjoyed extreme legal privilege prior the bailout precedent. They may employ people, but there is no reason to believe that what benefits capital also benefits labor in the distributive function of those organizations.

Planners should care about deepening inequality and a hollower state because they’re employed by the public sector both in public agencies and the consulting firms that cater to those agencies. So there’s the self-interest. The general case is: what does it mean for your profession when the rich don’t need you, or the amenities you advocate for (they can get their own, without public finance), and the poor can’t afford you?

Bond ratings as a political hostage, with Biblical analogies people seem to like so much

Lisa Schweitzer

If I hear one more person refer to US default as another Y2K, I am going to hit them on the earhole. Where are people getting this? FoxNews?

Defaults and downgraded bond ratings have happened before, and it costs people real money.

US bonds, right now, are in good shape and have been for a really long time. Our currency is solid, even though it does fluctuate. Those two things have economic benefits, big benefits, for the US.

No, with a debt default or bond rating downgrade, the sun will not crash into the earth, rivers will not fill up with blood, and our crops will not get devoured by locusts.

Although we do not have experience with the US missing a payment and getting a bond rating downgrade, we do have experience with it in other, arguably analogous places. Like Canada, or California, for that matter. They weren’t swallowed by whales as a result.

But I pay more points on a mortgage than I would if I lived in a state with a better bond rating than California. Why? Because part of the risk of loaning me money for an asset concerns the jurisdictions in which I live. Some of the risk is me, some of the risk is my context. So yeah, there are financial consequences–a lot of them–of letting your governments go to pot, even if you don’t get covered in boils.

With this all this posturing, the US is sending a message, and that is: we’re willing to let our bond rating be a political hostage. That means people in power here are either a) completely incapable of understanding fiscal policy and b) utterly careless about the consequences for international banking that US political instability–because that’s what this is—is having on Europe’s structural debt problems. IOW, the US is sending a loud signal to the rest of the world that our political squabbles can’t be managed well enough to provide stability even when we are perfectly capable of paying our bills, and we are willing to do that when other leading economic zones are in a real crisis.

None of this rannygazoo is good fiscal policy over the long-term. It adds more fuel to the fire for those who have argued against the US dollar meriting status as a reserve currency.

The last thing you want, if you are worried about the size of your outstanding debt, is for people to raise the interest on the debt you already have.

Not deriving a long-term plan for the deficit is bad for long-term bond ratings, too, just as missing a debt payment would be now. It’s one of the complexities of the situation. Failing to get serious about the long-term burdens of entitlement programs is a major, long-term issue–but so is failure to meet existing obligations.

If the Republicans don’t play their cards right, IOW, they could force a bunch of painful cuts, and the value of those cuts in deficit reduction could be completely offset (or eclipsed) by the higher costs of borrowing because the cost of borrowing goes up.

Banks and money market funds are already sitting on cash. That means trade isn’t happening. That means this hairpulling has already cost us money and economic activity and growth.

So how about we stop using bond ratings as a political hostage? I would sleep better.

The Value of R & D, Romer’s NYT Op-Ed, and Driverless Cars

Lisa Schweitzer

I don’t usually get two days out of any given Op-Ed, which goes to show you how much is going on in Romer’s essay from the NYT.

Another point she raises here:

Government spending on things like basic scientific research, education and infrastructure, on the other hand, helps increase future productivity. This type of spending often produces high social returns, but the private sector is unlikely to step up if the government pulls back. Case studies described in a recent survey found that less than half of the returns from research-and-development spending were captured by the private investor, so corporations shy away from such endeavors. Cutting federal funds for R.& D. would leave a void and could have significant long-run effects on growth.

Now, there are a bunch of things we can question here. The first is whether the private sector wouldn’t do more research if it had to, without having government sponsored universities and its research programs bearing some of those costs.

But the basic point is a good one as we sit back and watch Google and Volkswagen roll out their automated cars. The news stories make me want to rip out my hair: Oh, how clever are these companies?! Look at how they came up with automated cars all by themselves!

Google and Volkswagen–and the rest of us–are benefiting from more than a century of academic research on computing. There’s no Google at all without Alan Turing. We are always standing on the shoulders of giants—even the giants among us.

It’s unlikely we’d be at the point of automating cars without the space program or the army. Sure, there are plenty of roads to the same destination, and I’ve never been one to think that any one contribution is the be-all hero’s journey story that storytellers like to make of them.

But we have to give government-sponsored R & D some due: the investments in research often look arsy varsy and wasteful at the time. Who could have seen where we are today when Turing was fiddling about with algorithms while he was supported by the British government? What else might have he produced if he had done less applied work on the governments’ immediate problems? All those combinatorial math guys, foodling about. Where would traffic signals be without them?

Between Law & Order and the recent critiques of higher ed found *everywhere* produced mostly by people within the academy who hate it and their colleagues, it’s tempting to think that all academics get paid to sit around and molest their grad students. But reality is, as usual, different from stereotypes—the selected bad behaviors among some that are strategically emphasized to misrepresent the whole.

So how much R & D is too much? It’s a worthy question when social programs are getting cut, and hard to answer when you don’t know when the right idea is going to come along or when its application will suddenly become clear.

I have long sat through arguments from welfare rights advocates about how wasteful the space program is. It’s hard to disagree: when families are in need, don’t they have a greater claim to the resources? My response is that a wealthy country like the US can afford both to support poor families and innovation, but I don’t know that I believe my own response, and I’m not sure, if I had chose, which way I’d go.

Why?

If anything is likely to curb the bloodbath and loss of human life that are car crashes, it’s automated cars, the direct descendent of robotics and guided systems that were improved via space and aviation research. Automated driving is the potentially revolutionary marriage of government and market–research and implementation–that Google’s cars now represent. If defense and space research helped us get there, then the benefits to both rich and poor would be staggering in the retention of human capital.

Corporate greed and managerial power

Lisa Schweitzer

Bob Herbert writes in a A Sin and a Shame in the NYT that corporate managerialism has stepped on its employees time and time and time again:

The recession officially started in December 2007. From the fourth quarter of 2007 to the fourth quarter of 2009, real aggregate output in the U.S., as measured by the gross domestic product, fell by about 2.5 percent. But employers cut their payrolls by 6 percent.

link: Op-Ed Columnist – A Sin and a Shame – NYTimes.com


Paul Krugman on the US as a Banana Republic

Lisa Schweitzer

via Jennifer Dill:

And what about the economy’s future? Everything we know about economic growth says that a well-educated population and high-quality infrastructure are crucial. Emerging nations are making huge efforts to upgrade their roads, their ports and their schools. Yet in America we’re going backward.

How did we get to this point? It’s the logical consequence of three decades of antigovernment rhetoric, rhetoric that has convinced many voters that a dollar collected in taxes is always a dollar wasted, that the public sector can’t do anything right.

NYT Online: America Goes Dark

Krugman followed up on Maxine Udall!!

A few years ago, the chief lobbyist for Triple A told me that Los Angeles was headed in this direction, but unlike Krugman, he blamed:

a) overspending locally on unproductive new transit at the expense of roads, when roads were still carrying the same and/or greater traffic loads they always had in southern California; and

b) a failure to tap into local taxes–this was prior to Measure R–and tied hands among local governments in California regarding their property tax bases.

Now, a) is a complicated question, as we’ve discussed here before. It is possible that transit investments in general are productive, but the planning and politics around them erode their productivity–that is, we invest badly instead of wisely in a sector that could be more productive. There is also the second part of the statement: it’s possible to underinvest in streets even if transit investments have been prudential.

As my colleague Richard Green has said: “I don’t see anybody being an adult about this right now.” So what would being an adult entail? Taxing the rich?

Krugman is a bit too ready to assume that when the rich save money, the money just sits idle, as he suggests. That’s a populist ploy for his column–he has to know better. If we go back to our first year formulation of economic growth, we have the principle ingredients of land, labor, and capital. Things get a lot more complicated, but using those basics, we can think about the government investment in infrastructure as being capital investment, education being about labor productivity, and land being something that becomes more productive once there is capital investment or labor investment in it.

The argument in favor of tax cuts for the rich has always hinged on the idea that if investors are allowed to keep their money, that savings then provides the wherewithal for investment in capital.

The key problem is that nobody really agrees on the marginal productivities of these factors. So politically, it’s possible to stress capital over labor, but it is less clear that a dollar saved by a rich person has a better multiplier effect on the economy than a dollar spent on labor productivity.

So we are in a situation now in the US where investments in the labor factor have gone down for decades because education has become–as Tocqueville predicted–almost entirely devalued. The less we value it, the less we want to invest in it, and the less good it becomes. For example, I have students who say to me “What do you know? You just have a piece of paper that says you’re a doctor.” School is all just so much worthless time they have to waste; teachers like me are merely leeches on that system that has trapped them. And the most we degrade education and fail to invest in it, the more that’s true. Employers hire new workers who know little and wonder what the point of hiring people with degrees is.

I’m less sure, as Krugman seems to be, that we are in a death spiral. I have a sense that there must be regions and cities that are doing better at “being an adult” than others are. And may be what we are seeing here. Jennifer Dill suggested there is a shrinking cities component to this phenomenon, and that means the disinvestment in different roads may not be a bad thing. Some places in the US are simply not all that competitive in the global marketplace for labor and economic activity, and it’s probably ok to let investment in those places lag. However, that’s not true in cities like Los Angeles and San Francisco, and it may be that these regions have to become self-financing.

I suspect that those regions who do understand how to act like an adult will emerge looking pretty good in another 10 years.

But those regions may be in China, where they have aggressively invested in education and infrastructure.

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On wealthy defaulters

Lisa Schweitzer

I continue to be very interested in this question about who is defaulting, in the aftermath of fingerpointing at subprime lending. The Atlantic Monthly has a round-up of writing from around the web about the affluent defaulters. My favorite edgy quote:

Media Got It All Wrong Liberal blogger Duncan “Atrios” Black scoffs, “It’s a bit hard to comprehend that this housing/foreclosure crisis stuff has been going on for … years already. As is so often the case, the maintstream media got it completely wrong initially, painting it as a ‘subprime’ crisis due to bad behavior by unworthy brown people.” John Cole adds, “I can’t wait to hear how Republicans try to pin this … on black people and Fannie Mae and Barney Frank.”

link: Why the Rich Are Most Likely to Default on Mortgages | The Atlantic Wire

My colleague, Richard Green, has a commentary on the new round of evidence on who is defaulting as well. Take a look.

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Disappearing dream or spoiled brat?

Lisa Schweitzer1 Comment

The New York Times ran a story about how today’s graduates face a poor job outlook. That I get. What I don’t get is this:

Over the last five months, only one job materialized. After several interviews, the Hanover Insurance Group in nearby Worcester offered to hire him as an associate claims adjuster, at $40,000 a year. But even before the formal offer, Mr. Nicholson had decided not to take the job. Rather than waste early years in dead-end work, he reasoned, he would hold out for a corporate position that would draw on his college training and put him, as he sees it, on the bottom rungs of a career ladder.

link: For a New Generation, an Elusive American Dream – NYTimes.com

That would be known as a job–and $40K a year job. $40K a year while not a fortune, is twice as much as poverty level for a family of four. Yeah, it’s not a job you want forever, but taking and doing well in your first job, crappy as it is, demonstrates to employers that you know how to work in an office environment, discipline yourself to work hours and routines, etc.

The article goes on:

“Going it alone,” “earning enough to be self-supporting” — these are awkward concepts for Scott Nicholson and his friends. Of the 20 college classmates with whom he keeps up, 12 are working, but only half are in jobs they “really like.” Three are entering law school this fall after frustrating experiences in the work force, “and five are looking for work just as I am,” he said.

link: For a New Generation, an Elusive American Dream – NYTimes.com

OMIGOD you mean that in your 20s you wind up with shitty jobs? That’s such an ENTIRELY NEW THING!! See: Reality Bites.

Again, I respect that unemployment is bad, but am I really supposed to feel sorry for a kid who sort of feels bad about sticking his parents with his cell phone charges, but not bad enough to take a job he “doesn’t like”, and then there are six of his friends who are in jobs they don’t “really like.”

I’m pretty sure if you randomly sampled 20 of my friends, you’d find some who “didn’t really like” their jobs, too. That’s kind of why you get paid.

I’m sorry: this is a country where we have vilified “welfare queens”–people who have far fewer options and advantages than this guy when the economy is bad–and yet the NYT wants me to wring my hands over him? Yes, getting your first job is tough–even more so in this terrible economy. But I’m still waiting for the evidence that the “dream” is over for this guy just because what precisely he wants hasn’t magically materialized.

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A macro guy defends macro theory by telling us all we’re not smart or trained enough to “get it”

Lisa Schweitzer2 Comments

My colleague Richard Green commented on the Kartik Athreya’s critique of economics bloggers. He writes:

But George Akerlof did, way back in 2006, during his American Economic Association Presidential Address. which was entitled “The Missing Motivation in Macroeconomics.” I remember finding the piece enthralling (I know, we economists aren’t supposed to use such emotion laden words), because in made the very simple but devastating case that when the foundations of modern macro (the independence of consumption and current income (given wealth); the independence of investment and finance decisions (the Modigliani-Miller theorem); inflation stability only at the natural rate of unemployment; the ineffectiveness of macro stabilization policy with rational expectations; and Ricardian equivalence) are tested against data, they generally fail the test. I remember at the time that some economists thought that Akerlof had taken leave of his senses (and some friend of mine thought I had taken leave of mine because I so admired the address).

link: Richard’s Real Estate and Urban Economics Blog: One more take on Kartik Athreya’s critique of economics bloggers

Athreya’s essay may be found here. My favorite quote is:

So far, I’ve claimed something a bit obnoxious-sounding:that writers who have not taken a year of PhD coursework in a decent economics department (and passed their PhD qualifying exams), cannot meaningfully advance the discussion on economic policy. Taken literally, I am almost certainly wrong. Some of them have great ideas, for sure.But this is irrelevant.The real issue is that there is extremely low likelihood that the speculations of the untrained, on a topic almost pathologically riddled by dynamic considerations and feedback effects, will offer anything new.

Nope, Athreya, that’s not the issue. You might want to make it the issue, but that’s not the issue. The issue is, as Akerlof pointed out in his manuscript, whether modern macro theories have any predictive value at all, and if not, whether the profession legitimately merits a privileged position as a consultant to institutional power. The dribbling bit at the end about how the topic is “pathologically riddled by dynamic considerations and feedback effects”? Welcome to social science, cupcake. Do you really think deriving a verifiable theory of culture or society or cognition is a picnic?

Yes, economics is hard. So is driving a bus. Most of us can’t drive a bus, in fact. But most of us, when we are riding on a bus, can tell when there is an incompetent driver. So if Athreya wants to blame the traffic and the potholes and the sun in his eyes, that’s fine, but:



Is there an economic turnaround in Africa?

Lisa Schweitzer

Over at Becker-Posner, they are discussing the recent economic growth in sub-Saharan African nations, by no means uniformly felt, and what that may mean for the continent as a whole.

From Becker:

After many decades of hopelessness, there are finally grounds for believing that sub-Saharan Africa may be close to taking off toward sustained economic growth. Africa has rebounded from the worldwide recession faster than many other nations. The International Monetary Fund estimates that African GDP rose by 4.7 per cent in 2009, and the Fund forecasts that Africa’s growth will increase still further to almost 6 per cent in 2010. The rate of economic progress is not uniform in all the African economies, but these are impressive figures for a continent that has disappointed for so long.

link: Will Africa Finally Take Off? Becker – The Becker-Posner Blog

Yes, but when we are looking at comparatively small GDPs to begin with, the actual amount of new wealth gained is not large, nor does it necessarily benefit the most deeply impoverished Africans. You have to have faith in aggregate growth–the old rising tides lift all boats idea–to accept this is a prima facie good news for Africa

He’s got a better handle on what I would a better indicator of social progress: fertility:

But the typical African women still has 5 children over her lifetime; a number that far exceeds that in every other region of the world. Families with many children do not have the resources to invest much in the education, health, and other human capital of their children.

link: The Becker-Posner Blog

I think he’s wrong with the interpretation (just like I think Becker is in general wrong about family allocation decisions after a baseline point): families have more children when they are impoverished when they need the value-added of labor, and to have additional children hedging against the very real specter of early death and disability among children. Birth rates are also high when women have little economic opportunity outside of families, farms and villages. Nonetheless, birth rates in Africa are declining, and any decline is probably a good sign.

Posner, in his submission, notes:

A major factor in the region’s increased growth rate since the mid-nineties has been increased demand for commodities, such as oil and gold, which are major African exports, by China, India, and other rapidly developing countries; the increased demand has resulted in higher prices for these commodities. Many sub-Saharan African countries are net importers of commodities, and thus have been hurt by the higher prices.

link: Is Sub-Saharan Africa at a Turning Point? Posner – The Becker-Posner Blog

So while a large portion of the world economy folks are talking about culture industries and creative class people as drivers of economic growth, Africa’s growth appears to be driven by the same resource extraction industries that drew imperial interests a century and a half ago. The economic reliance on resource extraction, may not be good news for those left out of the elites who hold control over the extraction industries.

It’s hard for me to make any sense of the aggregate numbers. Regional economies are fairly different around Africa, so diagnosing at the continental scale is hard for me.

So what do you think? Quiet revolution?