Libertarians Explained...

Phone call for Mr. Overwater:  The UNauthoritarian personality is a Libertarian.

Interesting article in the WSJ, by Matt Ridley.  Excerpt:

In his recent book "The Righteous Mind," Dr. Haidt confronted liberal bafflement and made the case that conservatives are motivated by morality just as liberals are, but also by a larger set of moral "tastes"—loyalty, authority and sanctity, in addition to the liberal tastes for compassion and fairness. Studies show that conservatives are more conscientious and sensitive to disgust but less tolerant of change; liberals are more empathic and open to new experiences.

But ideology does not have to be bipolar. It need not fall on a line from conservative to liberal. In a recently published paper, Ravi Iyer from the University of Southern California, together with Dr. Haidt and other researchers at the data-collection platform YourMorals.org, dissect the personalities of those who describe themselves as libertarian.

These are people who often call themselves economically conservative but socially liberal. They like free societies as well as free markets, and they want the government to get out of the bedroom as well as the boardroom. They don't see why, in order to get a small-government president, they have to vote for somebody who is keen on military spending and religion; or to get a tolerant and compassionate society they have to vote for a large and intrusive state.

With a nod to MAG.

So Dog-gone Cute!

The wonderful Ms. Angus sends this link, to a video and a story of a man who loved his dog so much he took him to the lake so the dog could sleep comfortably.  A very sweet picture.

And, it turns out the pup got better!  People donated money, and Schoep got laser treatment.  (I don't even know how that works....Laser treatment for arthritis, for a dog?  Really?)

Why?

Why is this a car commercial?


Oh, and to Tommy the Tenured Brit:  You're quite welcome.

A nod to Angry Alex, who is Confused Alex for the purposes of the above.

"Tyler is trying to sphincter us"

People, I teach development economics (among other things) for a living. I only let paying customers into my class, & I don't let them tape the classes.

It's a sweet deal for me and people of my ilk.

But now Tyler and Alex are giving away the cow for free!

Yes, MR. University is up. Online, live and from a quick tour I took, mighty snazzy.

The first course, development economics, is ready for matriculation.

Check it our for your own selves: Learn, Teach & Share!

Part of me really wants this venture to succeed, but part of me doesn't want to spend the last few years of my working life saying "welcome to Walmart" 200 times a day.

Thus the title of my post.

PS: I am also going to spill the beans and inform you that Mrs. Angus will be doing a major MRU module on Mexico. Look for it in early 2013. et tu, Mrs. A?

The Sistine ain't so pristine

The Sistine Chapel is not for the faint of heart. While some may swoon over the over the top artwork, others complain of heat, smells and pick-pockets.

The Italians are having a logic-free emotional debate about the situation. One guy calling to limit the "drunken herds" (5 million visitors a year), the other side saying that limiting the numbers or putting time limits on visits is unthinkable.

People, all they have to do is raise the price and things will sort themselves out, but that move is apparently not in the Italian tool box!

This would be even funnier if it weren't for the fact that the hordes and their effluvia may be damaging the artwork.

Oh well, if they don't man up and cut the crowds one way or another, I know exactly who they should get to try and restore the Chapel's artwork!

Moving the goalposts in the NDGP debate, or money illusion illusion

Matt Ygelias reacts to my showing that inflation is uncorrelated with jobs growth while real GDP growth is highly correlated with jobs growth by deftly moving the goalposts:

Hiring workers is probably the wrong thing to think about. Let's worry about hiring capital goods. Some extra space for your business or some extra production equipment. You know the price of said capital and you know roughly what it does, but you're not sure whether you should buy it or not. You look to your left and you see a stack of dollars. You look to your right and you see a bunch of machines. Do you want to trade the dollars for the machines? It's a close call.

Now a little birdie from the Bureau of Labor Statistics shows up and tells you that the price level is going to surge over the next three years. Suddenly your decision is made for you. That stack of dollars isn't as valuable as you thought it was. Buy the machines!

So now the claim is that we don't need to separate NGDP (PY) growth into inflation and real growth because inflation changes investment decision.

Let's go to the charts, people. I am sticking with the two time periods Ryan Avent chose in the post that started all this in order to not be open to the charge of cherry picking dates.

So from 1990 to the present, here's the graph of real investment growth and inflation:

The linear correlation beween the two series is -0.007. Yikes!

Now for real investment growth and real GDP growth over the period:

The linear correlation between these two series is 0.78.

Inflation is uncorrelated with real investment growth, real growth is highly correlated with real investment growth.

Now let's look at the other Avent period, 1960 - 1980 starting with inflation and real investment growth:

The linear correlation here is -0.174.

Now for real investment growth and real GDP growth:

The linear correlation between these two series is 0.83.

So in practice inflation is uncorrelated with real investment growth, while real GDP growth is incredibly highly correlated with real investment growth.

So it seems, yet again, that business decision makers DO distinguish between which component of NGDP are changing, and if it's the P component, they ignore it when making decisions about changing employment and changing investment.

The US economy in these time periods at least, was not caught in the grip of money illusion.

For what purpose does the gentleman from Oklahoma rise?

I rise to revise and extend my remarks

The gentleman is recognized for one more blog post.


So let me try this again.

Nominal GDP growth is a sum (sort of) of two things. Real Growth and Inflation. Both are outcomes. The two things are not highly correlated with each other. One of them we like and one of them we (usually) don't like.

MMTers (NGDPists) frequently show graphs where a decline in output is correlated with a decline in NGDP and exclaim something like, AHA! THE FED HAS CAUSED THIS DECLINE BY NOT KEEPING NGDP GROWING FAST ENOUGH.

As I was pointing out yesterday, that can be a very tricky case to make because the decline in output is baked directly into the decline in NGDP!

That's what I thought (and still think) Mr. Avent was doing yesterday. But I don't think I actually called him an idiot as he seems to think I did though.

But then again I am so dense that I fail to understand exactly how the Fed is supposed to precisely target NGDP. They've kept the policy rate at zero for multiple years and promised to keep it there for multiple years more. They have flooded the banking system with reserves. But NGDP has not grown fast enough. Now the Fed has promised to keep the pedal to the metal after the economy has recovered, will that get NGDP growth where the MMTers want it?

In all honesty, the most I've been able to glean from the NGDPers is that the Fed should announce a NGDP path they are going to defend and ......

Create a futures market for NGDP and target its price?

Rely on the reverence people have for Fed announcements and sit back and watch NGDP happily conform to the announcement?

I am also so dense that I simply cannot parse some statements made by the NGDP crowd. Like this one from Scott Sumner:

NGDP is “the real thing,” whereas P and Y are simply data points pulled out of the air by Washington bureaucrats.

The man who implores us to "never reason from a price change" is now informing us that distinguishing between price changes and quantity changes is irrelevant or impossible?

Or this one from Mr. Avent:

Even in tough times, some people get raises. Those people capture some of the growth in nominal incomes, leaving a smaller chunk available to go to new incomes.

That's a real puzzler to this Okie. The raises ARE growth in nominal income, aren't they? Or does the Fed pour nominal income over the economy like cereal and we all scramble to grab our share and eat it before it's gone? Nominal income is not an exogenously imposed constraint on the activities of the private economy. Nominal income is largely created by the actions of the private economy.

I guess I just don't speak MMT very fluently.

the gentleman's time has expired

thank you mr. speaker.

Chilipunk'd! Journal Edition

So, I get this email....

Dear Prof Munger,

Please find attached an article that has just been published in Politics, one of the flagship journals of the UK Political Studies Association. Politics seeks to publish timely, research-led reflections on the start of the art, the state of the world, and the state of disciplinary pedagogy.

After consulting with the author, we identified you as one of the key experts in this particular field. Therefore we felt that you might like to see the article, entitled The Incumbency Advantage in the US Congress: A Roller-Coaster Relationship, as soon as it was published.

We hope it is of interest. Please get in touch if you have any questions, and do consider Politics as an outlet for your own research in future.

Best,  Dr Martin Coward

Editor, POLITICS

Senior Lecturer, Department of Politics

Newcastle University

(Attached:  PDF of paper)

 

And I'm thinking, okay, finally I get the respect I am due in this world.  I have published several papers on incumbency advantage, and the effects of incumbency on campaign contributions.  So, cool.

 

I look at the paper, and it never cites me.  Now, that's fine, too.  My papers on incumbency advantage are deservedly obscure, perhaps.  Fair enough.  A paper is published that doesn't cite me, no complaints.

 

Here's my question:  Why BOTH?  Why would someone single out a scholar, in another country, to receive a special copy of a paper that deals with a topic in which I'm a "key expert," and not cite that "key expert's" own work?  The only possible effect is to piss off the "key expert."  Why contact someone whose work is relevant, when you clearly don't really think the work is relevant?

 

Or, I guess, another possible effect is to cause the KE to write sarcastic blog posts about the whole thing...

Oh NGDP, is there anything you can't do?

In a long post over at Free Exchange, Ryan Avent passionately defends the honor of NGDPism against any and all heretics. This time it's GMU wonder boy Eli Dourado in the cross-hairs.

But Mr. Avent's analysis, to speak plainly, makes no sense at all. Let's break it down.

Mr. Avent starts with this chart, which he argues shows how NGDP growth is strongly related to job growth and thus crucial to economic performance:

But people here's the thing. NGDP is PY, the price level times real income. And one of those components, real income, is indeed highly correlated with jobs. The other component, prices, is not.

Let's look at how inflation (growth in the price level) and real GDP growth each chart up with jobs growth over Mr. Avent's sample period, starting with inflation:

The linear correlation between inflation and jobs growth shown here is 0.22, which is INSIGNIFICANTLY DIFFERENT FROM ZERO (t-stat = 1.01). In other words, one component of NGDP, prices, is not significantly correlated with job growth over this period (not even at the 0.20 level). Another way to see the lack of correlation is to note that if we ran a regression of jobs growth on inflation here the r-square would be around 0.05.

Now let's look at the other component, Real GDP growth:

The linear correlation between real GDP growth and jobs growth shown here is 0.64 which is SIGNIFICANTLY DIFFERENT FROM ZERO (t-stat = 8.2) at the 0.01 level. The r-square of this regression would be around 0.41.

In other words, Mr. Avent is using fluctuations in the real economy to explain fluctuations in the real economy. When real output tanks, jobs tank. It does appear from the graph that GDP growth might lead job growth, but we are really just graphing the same thing twice here.

People there's plenty more to come after the jump:

Bagel Head

Really?  Bagel Head?  With saline injections?  Third eye signed?

Nod to Jackie Blue, who notes, "Those wacky, WACKY Japanese."

I got the QE blues

Ramesh Ponnuru tells us to stop worrying and love QE3. But Ramesh is not giving you the straight poop!

Ramesh: "Long-term interest rates rose after its announcement".

Me: sure for one day, then they started falling right back again.

Look for yourselves:

Ramesh:  "The (stock) market reaction is a sign that this time loosening was warranted".

Me: Yes, stock prices jumped up that day. But look at the trend in stock prices over the last four years

Since early 09, the stock market has been trending up. It's very close to pre-crash levels in nominal terms. QE announcement effects are a drop in the proverbial bucket and certainly don't prove anything about whether or not QE is going to help the real economy.

Ramesh: "Looser money is boosting stocks because it is raising expectations of economic growth and thus of future profits."

Me: Any evidence or proof to back up that assertion? I see no way for him to show this cause and effect.

Do read the whole article. It's really quite bad.

************UPDATE********************

The always relevant Soberlook has more information here.

My dinner with(out) Chrissie

Had a lovely dinner at Rasika West End with LeBron and Mrs. Angus. Food was really delicious. We shared a lot of dishes. Appetizers were scallops, asparagus uttapam, & crispy spinach. They were out of this world. I figured then that the entrees probably wouldn't live up, but I was wrong. We had lamb chops, and black cod, and they were great.

Didn't have to yell to make ourselves heard, very good service, and incredible food. It's not exactly cheap, but I've had more expensive dinners that I didn't like as much.

Highly recommended, though I wouldn't pass up a dinner with that company no matter what was on the menu.

PS: only one of us had dessert, can you guess who?

the return of Dali-onomics

Recently I posted about a graph so strange, it could have been made by Salvadore Dali. Well, the mad grapher is back and better than ever.

Here is a link to the whole post.

Here though is the money graph:

Here we are graphing a decidedly non-standard monetary aggregate created by the Bill Barnett: "CFS M4 Divisia" (you can find some information about it here).

Our artiste creates the other line in the graph, "the optimal amount of M4 divisia by plugging in potential nominal GDP (as estimated by the CBO) and actual trend money velocity (as estimated by the Hodrick-Prescott filter) into the equation of exchange (i.e. M*t= NGDP*t/V*t )."

Got that? So we take some non-linear combination of 3 completely made up things to get our crucial real thing.

And it turns out that we have a shortage! Of what? Let me get back to you on that.......

The golden age of journalism is NOW!

Crushing expose of Christine Lagarde in this morning's WAPO.

Turns out that she's "Chanel Suits and weekend denim". One time in India, she swam laps "extra hard".

The "intoxicating Hermes perfume she wears"? People you know it's  “Un Jardin sur le Nil”

Kudos to you Ned Martel. You are a giant of journalism.

The closest thing I could find that might be of some conceivable relevance in this hum-job of a piece is that Christine buys  "Greek yogurt at the Foggy Bottom Whole Foods".

Chrissie buys Greek? That's gotta mean SOMETHING, right?

Maybe I'll ask her about it tonight. I'm going to Raskia West End, where she often "drops by".

Please, just STOP.

There's an old joke.  How do you get 100 Canadians out of a swimming pool?  You say, "Pardon me, but would you mind terribly please all getting out of the swimming pool?"

Well, how do you get old people who shouldn't be driving in the first place to stop ramming US Post Office buildings in Florida?  According to the USPS, you say, "Pardon me.  Um...PARDON ME!  AHHHHHH!  STOP RAMMING OUR OFFICE BUILD...(ooof!  ow!)"

Nod to Chateau

IQ scores have risen....a LOT.


Does this mean we are smarter? Not really. But it might mean we think more logically.

Whether that is good is another question.

Tip-ped over

I know people, I'm the economics professor. I'm supposed to give answers instead of ask questions, but I'm afraid that all I have here is questions. Read on if you dare.

The 10 treasury bond is yielding around 1.7% (none of what follows relies on the exact values of the numbers).

The 10 year TIPS yield is around  -.7%.  So a common calculation of inflation expectations, so called break-even inflation is at 2.4%.

From this information, I arrive at two important (at least to me) questions:

(1) Is this a reasonable measure of inflation expectations and (2) If so, what does it mean about the economy?

I question (1) because of concerns about the lack of liquidity in the TIPS market, the old issues of market segmentation, and just generally because equilibrium conditions in financial markets that aren't enforced by pure arbitrage don't actually seem to hold in the data.

I did a bit of research and found a couple Fed branch bank papers on the topic (see here and here).  Both papers conclude (if I am reading them correctly) that the break-even inflation calculation of inflation expectations probably understates expected inflation!

So that leads to question 2. If Inflation expectations are above 2.4%, but the 10 year treasury is yielding 1.7%, why are people holding 10 year treasuries? Because the equilibrium real interest rate on safe securities is negative, like around -1.0%? 4 years after the crisis, risk aversion is so high that people are willing to accept a negative return for in exchange for safety? So either the supply of safe assets is very small, or the demand for safe assets is overwhelmingly high? 

If inflation expectations at the 10 year window are rising, but returns on 10 year treasuries are simultaneously falling, then the equilibrium real rate of interest on safe assets is getting lower and lower (in our case more and more negative).

Does this mean that 4 years after the crisis, people's willingness to undertake risky investments is actually falling? If so, isn't that a very bad sign for the direction of future economic activity?  The Baa seasoned bond yield is 4.9%. If inflation expectations are 3%, then the real return to capital is 1.9%?

Or does it mean somehow that the supply of safe assets is shrinking faster than the demand for safe assets is falling? Can we just blame Europe?

 

Or are we just making a big mistake in calculating inflation expectations?

 

 

What If Everybody Flushed Their Toilets at the Same Time?

What If Everybody Flushed Their Toilets at the Same Time?

In Zimbabwe, they tried it.  To achieve unblockage.  Somehow, this makes me think about hyperinflation.  But I'm not going to think about it any more.

With a nod to Anonyman

I only speak da troof! I only speak da troof!

Cyanide & Happiness @ Explosm.net Read more at http://www.explosm.net/comics/2932/#XqiIOjGDsd14YalZ.99

title of the post comes from Moulin Rouge, as you may remember...

With thanks to Michael McC, who had BETTER get back to reading Mankiw.

Tax farming, Chinese style

Apparently there is at least one city in China where people routinely litter, spit in public and break traffic laws (oh Shaoyang, you know I'm talking about you). This particular city was also short of employees and cash to fight the problems.

Their solution? Hire 1000 senior citizens to patrol the streets and LET THEM KEEP 80% of the ticket revenue they generate?

Can anyone guess what happened?

Yep, those lucky seniors wrote a mountain of tickets.

Can anyone guess who's mad?

Yep, the scofflaws.

I love this quote:

“Many of us depend on motorcycles to get around, but they’re now giving us tickets for not wearing a helmet, for not having insurance, or for not carrying our licenses,” complained the clerk, who would give only her surname, Li. “None of us dare drive our motorcycles anymore — it’s just too risky.”

Apparently, complying with the laws is just totally out of the question?

The only thing the city did wrong here was that they are paying the seniors $70 some dollars a month. They should have auctioned off the positions, making people pay up front for the right to write tickets and keep 80% of the revenue.

Early Voting

Article in the NY Daily News about early voting in NC.  Reporter was kind enough to give me a call.

It is interesting to think about how early voting changes things.  Dems have better organization, Reps have better cash on hand.  Early voting has the effect of allowing organization to win.

Why?  Because (1) you can just pester people on the street:  Get on the bus!  Get on the bus!  Vote for us!  Vote for us! (2) people who vote early won't hear the ads in the last two weeks, paid for by the Rep money.

A number of people told me, in 2008, they regretted their votes.  Bev Perdue ran some remarkably racist ads at the very end.  The campaign knew that by then it was too late for the sensible people to take their votes back, and so Bev was free to appeal solely to the wack jobs who were still undecided.

Popinator

Question:  Will I be needing one of these?


Answer:  Yes.  Yes, I will.

With a nod to Angry Alex.

Words of wisdom from the Honest Toddler

"Owls are evil and haunted. If you have one, kill it with fire."

"I know the two of you are convinced that the Fischer Price Ocean Wonders Turtle Nightlight thing is some kind of proverbial night watchman, but I assure you if an owl tried to collect my eyes at 10PM, that $50 construction would prevent nothing."


"Owls are like the Twizzlers of woodland creatures. People pretend to like them but at the end of the day everyone's upset and asking why."

Dropping musical knowledge

Pitchfork has an excellent feature on the life and times of the incredible Sun City Girls, with audio clips included. Highly recommended.

They also have a nice piece describing the discography of The Books.

These are indispensable bands, people. Ignore them at your peril.

Take the long way home

A fair amount of the Fed's post-crisis "unconventional policies" have been aimed at the housing market. QEIII in particular. Often, these policies are evaluated on a very short term basis. Before and after the announcement like a pseudo event study is one popular method. Looking at what happens to rates after the policy ends is another. We've all seen charts of the last five years with vertical lines indicating the beginnings and ends of various Fed policies, with credit or blame assessed as desired.

But the basic fact about mortgage rates in this country is that they've been secularly falling. Here's a graph of the average 30 year fixed rate. Data are from Fred.

(clic the pic for an even more ski-slope image)

Rates are less than half what they were in 1976 when this data series begins. Rates have been steadily falling since 1982.

In other words, we've seen a steadily falling trend in mortgage rates over the last 30 years with a fair amount of short run noise around the trend.

Given that context, I think we are putting way too much emphasis on very short run movements in mortgage rates as an indicator of the effectiveness of particular Fed policies or announcements.

I also think, given mortgage rates are already at a 35 year low, that driving them down even more is not going to be a big boon to the housing market. I don't see how it helps re-financers all that much either. If you refinanced at 3.75 are you going to do it again at 3.49?



PS: Do I think the modern Fed deserves credit overall for this falling trend? Sure, just as much as they deserve blame for the ultra-high rates in the late 70s and early 80s.

First Owls, Now Mosquitos

Owls are criminal masterminds?  Living in Raleigh, I've been hearing that for years, sure.

But....mosquitos are game theorists?  The Ward Boss wants to know.

A Beautiful ____ in the Neighborhood(s)

An Alternative Approach to Addressing Selection Into and Out of SocialSettings: Neighborhood Change and African American Children’s EconomicOutcomes

Patrick Sharkey
Sociological Methods Research, May 2012, Pages 251-293

Abstract: This article develops a method to estimate the impact of change in a particular social setting, the residential neighborhood, that is designed to address nonrandom selection into a neighborhood and nonrandom selection out of a neighborhood. Utilizing matching to confront selection into neighborhood environments and instrumental variables to confront selection
out of changing neighborhoods, the method is applied to assess the effect of a decline in neighborhood concentrated disadvantage on the economic fortunes of African American children living within changing neighborhoods. Substantive findings indicate that a decline in neighborhood concentrated disadvantage during childhood leads to increases in adult earnings and income, but has no effects on educational attainment or other social outcomes.

*********************************

Neighborhood Effects on the Long-Term Well-Being of Low-Income Adults

Jens Ludwig et al.
Science, 21 September 2012, Pages 1505-1510

Abstract: Nearly 9 million Americans live in extreme-poverty neighborhoods, places that also tend to be racially segregated and dangerous. Yet, the effects on the well-being of residents of moving out of such communities into less distressed areas remain uncertain. Using data from Moving to Opportunity, a unique randomized housing mobility experiment, we found that moving from a high-poverty to lower-poverty neighborhood leads to long-term (10- to 15-year) improvements in adult physical and mental health and subjective well-being, despite not affecting economic self-sufficiency. A 1–standard deviation decline in neighborhood poverty (13 percentage points) increases subjective well-being by an amount equal to the gap in subjective well-being between people whose annual incomes differ by $13,000 — a large amount given that the average control group income is $20,000. Subjective well-being is more strongly affected by changes in neighborhood economic disadvantage than racial segregation, which is important because racial segregation has been declining since 1970, but income segregation has been increasing.

*********************************

With a nod to Kevin Lewis

MIE: TAM edition

Not too long ago, people were upset about an elderly lady who allegedly botched a Jesus Fresco restoration in Italy.

I took the minority view and claimed that the "towel-armed manimal" she created was actually an improvement. Look, we have tons and tons of old Jesus paintings. Baby Jesus, Happy Jesus, Sad Jesus, you name it, but as far as I know, that is the only manimal fresco in any church anywhere!

Turns out that people agree with me, as the church has been making money selling tickets to see the TAM.

Really.

They've gotten over 2000 Euros so far, and not surprisingly, the little old artistic genius who created TAM wants a taste.

Perhaps also unsurprisingly, the church has "lawyered up" and is planning on keeping all the loot.

If it's good enough for King Tuff, it's good enough for me

I really like King Tuff, and he really likes Hector's Pets. So I took a listen, and now I do too. You can hear them here.

(bad) news round up

1. Things are still getting worse in Europe. Looks like France is set to join the recession club.

2. Chinese stocks are tanking.

3. Is our sanctions working? Maybe not.

4. People are tweeting about owls. Yikes! We are doomed.

Election Commentary

Some election commentary, on News 14 Carolina.  Here is the video.  My part, if you want to skip to it (or avoid it!) starts at about 7:40

Just the tip of the iceberg

Yesterday I gave a couple of examples to illustrate the point that "owls are assh***s".

In the comments, the always impressive Simon Spero pointed out that owls are actually evil criminal masterminds.

Apparently, a barred owl killed a woman and framed her husband for murder!

I knew about the Michael Peterson case, even saw "The Staircase" but was unaware of (a) the owl theory and (b) that Peterson was out on bail awaiting a new trial.

Apparently non-institutionalized people are claiming that an owl attacked and (more or less) killed Kathleen Peterson, and then framed the husband.

Of course, it goes without saying that I am not making this up.


Dr. Alan van Norman wrote "The multiple wounds present suggest to me that an owl and Ms. Peterson somehow became entangled. Perhaps the owl got tangled in her hair or perhaps she grabbed the owl's foot."

Dr. Patrick T. Redig, a professor of veterinary medicine at the University of Minnesota wrote "In my professional opinion, the hypothesized attack to the face and back of the head resulting in the various punctures and lacerations visible in the autopsy photographs is entirely within the behavioral repertoire of large owls".

Kate P. Davis, executive director of Raptors of the Rockies, located in western Montana, wrote "The lacerations on Mrs. Peterson's scalp look very much like those made by a raptor's talons, especially if she had forcibly torn the bird from the back of her head," she wrote. "That would explain the feathers found in her hand and the many hairs pulled out by the root ball, broken or cut. The size and configuration of the lacerations could certainly indicate the feet of a Barred Owl." She noted that owls can kill species much larger than themselves and that it is not uncommon for them to attack people.

"Banned" iPhone 5 ad

The sixth iPhone!  The iPhone 5!  Pretty funny.  I like where "Bob Mansfield" comes on.  Clearly illegitimate son of Duke's Provost. 

 

Nod to Angry Alex

When Self-interest can hide behind the violence of the state...

Self-Interest Without Selfishness: The Hedonic Benefit of Imposed Self-Interest

Jonathan Berman & Deborah Small
Psychological Science, forthcoming

Abstract: Despite commonsense appeal, the link between self-interest and happiness remains elusive. One reason why individuals may not feel satisfied with self-interest is that they feel uneasy about sacrificing the needs of others for their own gain. We propose that externally imposing self-interest allows individuals to enjoy self-benefiting outcomes that are untainted by self-reproach for failing to help others. Study 1 demonstrated that an imposed self-interested option (a reward) leads to greater happiness than does choosing between a self-interested option and a prosocial option (a charity donation). Study 2 demonstrated that this effect is not driven by choice in general; rather, it is the specific trade-off between benefiting the self and benefiting others that inhibits happiness gained from self-interest. We theorize that the agency inherent in choice reduces the hedonic value of self-interest. Results of Study 3 find support for this mechanism.

This makes a lot of sense.  People would feel terrible if they robbed a liquor store and took the money.  But if the STATE takes the money at gunpoint, and "gives" it you....cool!  Now I'm happy!  Because I didn't do the stealing, I just get the benefit of the stealing!

Nod to Kevin Lewis

The Economy & Presidential Elections

There's a lot of talk about how the relatively weak economy is not hurting President Obama's re-election chances from top pundits like Ezra Klein, Matt Yglesias, & Will Wilkinson. It's either just stated or said that "models show" this to be the case.

But, one thing about statistical models of elections is that they kind of suck. There aren't a lot of observations so people often use data from the distant past to predict the future without testing to see if the data generating process is constant over the time period.

Also people use a lot of strange and potentially endogenous explanatory variables. As a rule of thumb, if you let me pick the dependent variable and also allow me to create my own made up right hand side variables, I'm going to get a pretty good in sample fit for my model.

So lets just look at the relatively recent  raw data and see what we can see. This graph is from my 2008 Public Choice paper. It shows that from 1961-2004, there is a pronounced difference in economic performance over the second half of the election cycle between cycles where the incumbent party wins and when it loses.

I used Fred to update the results through 2008, and average growth over the last half of the election cycle when the incumbent party wins is 4.6%. When the incumbent party loses, it's 2.2%. That difference is significant at the 0.001 level.

For the relevant period of the Obama cycle for which Fred lists data (2011 q1 - 2012q2, 6 quarters), the average growth rate is 1.9%

In recent times, the incumbent party will, on average, lose with such a low growth rate in the second half of the cycle.

Why do I care about this? Well, I want to question the idea that the economy is helping (or at least not hurting)Obama. I want to question the assertion that campaigns don't matter because the economy is everything.

BHO is going to win in November DESPITE the economy, largely because Romney is a terrible candidate who is running an undisciplined, juvenile, brain-damaged campaign.

And that matters.

It's all connected, people

We've been getting woken up once or twice a week by a series of unearthly sounds from the park next door. I initially attributed it to a screech owl, but it turns out that they don't actually screech! Research led us to suspect the barred owl.

Made me wonder what they were all about.

Then in this morning's tabloid I read a story about a barred owl repeatedly attacking a jogger.

Did a little more research and discovered this.

Couldn't agree more.

More Government? More Markets? Wrong Questions!

Here is the video of the gig I did up at GMU last week.  It's more than an hour, but the quality of the video is very good.  Thanks to FFF for setting this up, and producing the video.  Nice.

Several points to watch for:

1.  My laptop has a neon green "Eat at Flaming Amy's!" sticker.  I didn't really think that through, I guess.  Pretty distracting.

2.  Bart Frazier does an excellent Colin Farrell imitation, for the intro.

3.  Great audience.  Really enjoyed the talk!

Michael C. Munger "More Markets? More Government? Wrong Question!" from The Future of Freedom Foundation on Vimeo.

 

Cartoon of the Day

I love the conflation of The Bernank, Jim Kramer, & Santa Claus in that likeness. Come to think of it, that's just about right.

The culture that is Korea / MIE

People, the R.O.K. is the men's make-up capital of the world.

Over 21% of global sales happen there and gross sales for 2012 are expected to exceed $850,000,000.

Men wear lipstick and foundation!

What has happened to the rough and tumble Korean male?

Theories abound, but as always in Asia, cherchez the Japanese:

Things began to change in the late 1990s, when the South Korean government relaxed a ban on Japanese cultural goods, exposing South Koreans to different ideas on male beauty, including popular comics featuring pretty, effeminate men.

Markets in everything: Gourmet edition

Today I was taken to a store called "Russian Gourmet" in Fairfax. I found this:

On Yelp, the main complaint about the store is that it sells goods past their expiration date. I wouldn't see that as a problem in this case.


PS: There is a store in Arlington called "British Goodies". It does not appear to be empty.

Memorial For Graham Chapman

You may have seen this; I hadn't.



If I go first, and Angus finds it convenient to attend the memorial, please know that I am counting on you to say "F***."  And be sure I'll take care of that if the reverse happens, bud.

Thanks to Dutch Boy, who notes, "Now, THAT is a memorial service."

on the price dynamics of boiled sand

Wow. Tim Worstall drops some serious knowledge on us this morning about the dynamics of market pricing for silicon chips and the reasons why Solyndra and many Chinese solar firms failed or are failing.

Not sure that I agree with his overall point that we don't care about producers when evaluating the effects of trade, but I learned a lot about boiled sand and the production of solar panels.

Here's an excerpt (but do read the whole thing):

At which point I should make the metal’s industry critique of the Solyndra business plan. They assumed a continuing high price for silicon and thus their technology concentrated on making that expensive material more productive. If silicon had remained high priced it might even have worked: but as they were ramping up production into a world where the raw silicon ingot had just fallen to 10% of its previous price they were doomed.

The horror, the horror

KPC Icon Zach Weiner knocks it out of the park in this SMBC strip.

Kudos sir, well played indeed.

Here's a teaser:

Group Decision Making

Groups Make Better Self-Interested Decisions

Gary Charness & Matthias Sutter
Journal of Economic Perspectives, Summer 2012, Pages 157–176

Abstract: In this paper, we describe what economists have learned about differences between group and individual decision-making. This literature is still young, and in this paper, we will mostly draw on experimental work (mainly in the laboratory) that has compared individual decision-making to group decision-making, and to individual decision-making in situations with salient group membership. The bottom line emerging from economic research on group decision-making is that groups are more likely to make choices that follow standard game-theoretic predictions, while individuals are more likely to be influenced by biases, cognitive limitations, and social considerations. In this sense, groups are generally less "behavioral" than individuals. An immediate implication of this result is that individual decisions in isolation cannot necessarily be assumed to be good predictors of the decisions made by groups. More broadly, the evidence casts doubts on traditional approaches that model economic behavior as if individuals were making decisions in isolation.

Nod to Kevin Lewis

Sam Bacile

So I was thinking of writing something about contemptible Sam Bacile, the "persona" who may (or may not) have made a movie, the trailer of which appears to have driven a whole bunch of people to become very angry at a person who doesn't exist because he made a movie that doesn't exist.

But, no need.  Ken took care of it, over at Popehat.  What he said.

The reign in Spain

Awesome long read / rant / public choice analysis of how Spain got to where it is today. Casts doubt on the widely held idea that Spain's real estate bubble was mainly a private sector creation.

Hat tip to Martin Varsavsky

Nerdfest: WeinerSmith!

Zach Weiner sends along this podcast, which even he describes as being exremely nerdweiler-ish.

But very cool, on the science.

The Button Down Mind of Matt Yglesias

Matt has an amazing ability to compartmentalize. He doesn't seem to notice or care that this tweet, awesome though it is, completely conflicts with his beliefs about how monetary policy can work:

"Given that nobody in congress wants to do the sequester, why not just not do it? Don't let the stupid debt deal force our hand!"

Here Matt recognizes that future laws can just be repealed if, when the time comes, they are no longer in the best interest of Congress.

However, he absolutely refuses to acknowledge that this exact same idea holds equally well for the Fed and monetary policy.

Suppose it's February of 2014, and unemployment has fallen to 6.2% (through reductions in the numerator, not the denominator). Suppose core inflation is now running around 4.5%. Then consider the following Fed scenario.

"Given that none of us on the FOMC want to still keep the policy rate at zero, why not just not do it? Don't let the stupid previous forward guidance force our hand!"

Works just as well, if not better, because the Fed's process for "just not doing it" is much simpler than is Congress's process.

No policymaker who enjoys discretion can credibly commit to undertaking a future action that will likely not be in their best interest to undertake when the time comes!

Why do you think the Super-committee failed? Part of the reason was they didn't fully believe the doomsday cuts that accompanied failure would actually happen.

Monetary policy is no different. To the extent that policy effects depend on people believing the Fed will act against its own interest in the future, the policy just won't be very effective.

Now this new package of monetary policy actions may help. I'm in favor of trying more stuff like buying MBS. But if you think the Fed will not tighten when the economy recovers, there's an upcoming sequester I'd like to bet you about.

Words of wisdom

"Alternative energy is expensive. Insulation is cheap." ~ Sam Hagerman, president of Passive House Alliance US

More good stuff here.

Mrs. A and I are working toward building a passive house in the Santa Fe NM area.

Faculty photo in Romania

So, our group picture, at the Craiasa Muntilor near Brasov.

That's Virgil Storr, Dave Schmidtz, me with the hat, and Jerry Gaus in back, threatening to hold Mihai Titienar hostage for more of that great bread.
 

Soft Ball

Proprioception and Person Perception: Politicians and Professors

Michael Slepian, Nicholas Rule & Nalini Ambady
Personality and Social Psychology Bulletin, forthcoming

Abstract: Social-categorical knowledge is partially grounded in proprioception. In Study 1, participants describing "hard" and "soft" politicians, and "hard" and "soft" scientists used different "hard" and "soft" traits for the two groups, suggesting that the meaning of these traits is context specific. Studies 2 to 4 showed that both meanings were supported by hard and soft proprioception. Consistent with political stereotypes, perceivers viewing faces while handling a hard ball were more likely to categorize them as Republicans rather than as Democrats, compared to perceivers viewing the same faces while handling a soft ball (Study 2). Similarly, consistent with stereotypes of "hard" and "soft" academic disciplines, perceivers were more likely to categorize photographs of professors as physicists than historians when handling a hard versus soft ball (Study 3). Finally, thinking about Republicans and Democrats led participants to perceive a ball as harder or softer, respectively, suggesting that simulating proprioception might aid social-categorical thinking (Study 4).

With thanks to Kevin Lewis.

For some reason, that article reminds me of "The Caine Mutiny"....  (after the jump)

Regulation is AlwaysTurned into Cartelization

"[The California Environmental Quality Act] passed in 1970 has also been increasingly abused, opening the door to lawsuits — sometimes brought by business competitors or for reasons unrelated to the environment — that, regardless of their merit, can delay even green development projects for years or sometimes kill them completely...In San Francisco, the city’s plan to paint bicycle lanes, one of the main goals of environmentalists, was delayed for four years by a lawsuit filed by a local resident who claimed that the lanes could cause pollution. And it is not only big projects that are litigation targets. In San Jose, a gas station has been indefinitely prevented from adding another pump because of a lawsuit filed by the owner of a competing gas station across the street...But in the 42 years since Gov. Ronald Reagan signed the Environmental Quality Act into law, attacks against the measure have largely failed" [NYT article]

Nod to Kevin Lewis

Amitai Etzioni:  "You don't need to buy this"  The "curse" of consumerism.


He's right about one thing:   I don't buy it.  Tell it to poor people anywhere...hey, guy, you don't need that car, that bicycle, that refrigerator.

Typical rich guy view of "consumerism."  What a santimonious goofball.

Just So Stories....

A lot of stuff that "makes sense" about the origins of human behavior either isn't true, or is hard to prove.

An interesting piece in the New Yorker.

Always look for the union label

So, the great Chicago teacher strike is apparently a big deal?  I'm not sure I get it. The strike is legal, right? I can't see it lasting too long if the teachers are not getting paid. Do they have a big strike fund?

Sure, we can debate whether public employees should be unionized at all. Whether taxpayers get left out of the negotiations when "management" feels more kinship to the teachers than to those paying the bill. And it's true that unfunded pension liabilities are a real problem in many states.

But the Chicago teachers are playing by the rules as far as I can tell, so what exactly is the problem?

This piece by Freddie DeBoer got me thinking about the strike (thanks to @modeledbehavior). I highly recommend reading it, not because I agree with him, but because it is extremely entertaining.

Among many other things, Freddie rails about people who want the best and brightest to go into teaching but then think teachers get paid too much.

But here's the thing. It doesn't make sense for society to have the best and brightest go into teaching. We don't need geniuses teaching in elementary school! The opportunity cost is just too high (and yes I know the studies showing a good kindergarten teacher affects lifetime earnings).

Nor does it make sense to (as Freddie does) compare Ezra Klein's salary with the average Chicago teacher salary. Ezra is a blogger. A very good blogger. He has risen up to his current position based on his skill at entertaining and informing people. Certainly the average (or at least the median) salary of a blogger is quite a bit below the average (or at least the median) salary for a Chicago school teacher.

But Ezra is a super-star and is compensated accordingly. Would Freddie and the teachers unions accept this kind of pay-scheme? Big money for superstar teachers, peanuts for the crappy ones.

In higher education, salaries generally differ according to field and accomplishments. Assistant professors of economics generally make more than assistant professors in philosophy even inside the same institution. Holding field constant, better published and better cited professors generally make more than lesser published and cited professors.

Would the teachers unions allow science teachers to be paid more than english teachers?

Higher pay for all teachers is an answer in search of a relevant public policy question. In other words, it's great for (some of) the teachers, and they are certainly playing by the rules to seek it, but it doesn't really solve any of the issues we may have with education in this country.

Desperation is the Worst Cologne

Nick T. writes about his car-buying experience...

Nick, I have to point out:  If they were better people, they would have better jobs.  There are PLENTY of good people working in sale, but selling new cars these days is pretty tough.
 

RIP, Thomas Szasz

Thomas Szasz, 1920-2012--NYTimes Obit

Reason article.  Very interesting.

As the Reason article points out, Dr. Szasz never denied that there are physical and neurological causes for some brain "illnesses."  What he objected to were the "diseases" that were fabricated, for the purpose of (1) enriching the pharm-industrial complex, and/or (2) treating personal quirks as pathologies, as a means of social control and repression.

We'll miss him.

With a nod to Angry Alex, who a lot of folks would like to put in the nuthouse.

Why do Socialists hate mountains?

Hat tip to Azizonomics

Ultimate Thinspos: Auschwitz

An Estonian newspaper ran an ad for diet pills, accompanied by a photo of Holocaust victims. Here is the AP story

Money quote: "Sulev Vedler, deputy editor of Eesti Ekspress, says the mock ad, which ran in the paper's humor section, was poking fun at an Estonian gas company that recently used an image of Auschwitz to promote its services."
 

The Israeli newspaper Haretz ran the story, and ran the picture (in Hebrew), which US papers have been (not too surprisingly) unwilling to do. Here at KPC, of course, we are rarely unwilling.

Lagniappe: Don't know "thinspo"? Let me google that for you...

With a nod to Emek B.

They're not even making it up on volume

When I lasted visited the Chevy Volt, January 2012 sales were 603 units (against a 46,000 target for annual sales).

Since then, the company has taken bold action: $199/month leases!

So it's around $5k to lease a Volt, which has a base retail price of $40,000, for two years. This has help to vault sales up to 2800 in August, making 13,500 sold for the year to date. If you include prorated development costs, each Volt is costing Chevy around $75,000!

Know how many Prius Toyota has sold so far this year? Over 160,000.

You may wonder what GM has to say about all this. Well here's Doug Parks, VP of "global product programs":

"It wasn't conceived as a way to make tons of money,"

Maybe Obama could borrow George Bush's banner and hang it on the factory wall?

What's that, the factory is closing next week for a month?

How about $99 / month leases?

Hat tip to the mighty Mark Perry.

Marginal Revolution University

LeBron's plan for (voluntary) world dominion proceed apace.

With MRU

Also on facebook...
 

12 great hours

Big fun, people. Last night Mrs. A and I saw Bob Mould play the 930 club. Tremendous show full of great songs and great energy. He played the old Sugar album "Copper Blue" straight through, then several excellent songs from his new album "Silver Age". Even played from the Husker Du catalog.

(sorry for the poor picture. a stock iPhone 4 is a crap camera).

Then this morning we took a hike in that strange and glorious place that is Rock Creek Park:

Now it's nap, work, and watching the US Open women's final.

If Mr. Mould is coming to your town, you should definitely check it out.

Should Democracy Decide Everything?

My first video at LearnLiberty.  They did a good job with it, very nice.  But it was the last video we filmed, and I was really tired (it was a 10 hour day!).  Reading a bit mechanically....ick!  Still, they did a really good job with the graphics, and making me look better than I am.

 

Mungo move over, let Angus take over

Mungo may have run for Governor of NC, but this morning I realized that I, Angus, want to be President of the USA!

It hit me this morning when I saw this (more info here):

The President can put art from the National Gallery in his/her house!

So I could live for 8 years (people you KNOW I'm getting re-elected) in a House full of Richters, Hodgkins, Keifers, and more.

I can be surrounded by Rothkos! Pollocks! Johns!

I can have that huge, awesome Max Ernst statue in my rec room. I can have Brancusis on my coffee tables. Marino Marinis on my patio (q: what's horseback and overly happy? a: the rider in a Marini sculpture).

All this could be IN MY HOUSE! (hey it's a better reason for running than Romney's!)

PS: I'd lean on the Hirshhorn to lend me some Bacons!!

QOTD: vampire squid edition

"Goldman Sachs makes for an attractive monster, but the bigger vampire squid may be the American Medical Association, which has colluded in blocking universal coverage and driving up health costs since World War II."


More good stuff here.

Department of bold predictions: Krugman Edition

Look at Paul, way out on a skinny branch:

"The next four years are likely to be much better than the last four years — unless misguided policies create another mess."

 LOL. Ya think?

The last 4 years have been absolutely horrible. Perhaps the worst in the post-war era, certainly since the early 80s. The economy can't stink forever, household de-leveraging won't last forever, so this is kind of a no-brainer.

And yet note the lack of any quantitative dimension. "Much better", not "average 3.5% growth", or "have unemployment hit 5.5%".

And also note the convenient escape clause "unless....".

Perfect PK move. Setting himself up for a big "I told you so", with a very flexible goalpost and a get out of jail free card if things really don't work out.

Fed announcements as "cheap talk"

As any semi-loyal KPC reader knows, I find the "just do your job" critique of the Fed baffling. In our current institutional framework, the Fed cannot credibly commit to future actions that will conflict with their period by period utility function.

That is to say (more or less accurately), the Fed cannot credibly promise to tolerate higher inflation than it prefers after the economy recovers because, when the economy recovers the Fed will still not like inflation and there is nothing to prevent them from not tolerating it. Knowing this, people will not believe the initial announcement.

So, why does the Fed make announcements about the future at all? Could they ever "work".

I believe the relevant economic theory here is the literature on "cheap talk" in games.  A readable approach can be found in Ferrell & Rabin.

For cheap talk to be effective, Ferrell & Rabin argue that it must be self-signalling meaning that the sender only wants to send the message if it is true (or if it is at least correlated with the truth). They also argue that it must be self-committing, meaning if the receiver believes the message, the sender has incentives to fulfill it.

I think that the messages people want the Fed to send are not self-committing, so that such "cheap talk" won't work.

However, there is a famous paper by Jeremy Stein on cheap talk and the Fed that argues that the Fed can make imprecise announcements which will have some effect on expectations. I haven't fully figured that paper out yet.

Performance Art: Housesitting Edition

It's 2:30 am in our short-term rental. A loud electronic chirp wakes us up. Again. and Again.

Must be the smoke alarm in the hall outside the bedroom. Get up and sure enough, that's where it's coming from.

Get a chair, pull off the cover. Take out the battery. Curse. Go back to bed. And? A loud electronic chirp.

WTF?

Go hunting around the house for another battery. Find some, but they're labeled "best before 8/08".

Put one in anyway. Curse. Go back to bed. And? A loud electronic chirp. WTF?  Maybe it's wired into the house's electrical system.

Get flashlight. Head to basement. Thank goodness the circuits are all labeled in the junction box. Turn off all the upstairs circuits. Curse. Go back to bed. And? Loud electronic chirp.

Mrs. Angus makes me go back downstairs to "see if the switches have turned themselves back on" Now after 3:00 am. Thankfully, the laws of physics still apply and circuit breakers are still off. I turn them back on anyway because that clearly isn't the issue.

As I'm climbing back up the stairs, fantasizing about throwing myself off the roof and getting some sleep at the hospital, I see a small disk-shaped object on top of the books on the bottom row of a bookcase in the hallway where the smoke alarm is located.

It's a Carbon Monoxide monitor. I pick it up and it emits....a loud electronic chirp. I rip off its cover, shake out its batteries and crawl back into bed.

One more such victory and we are lost.

I'm so bored with the USA!

Oh anonymous Weibo user, I see what you did there. Pretty good read.

Here's a teaser:

(14) Americans are wimps. 95% of drivers don’t even dare to run red lights…although 99% of American adults have a car, their driving method is very strange: There are many cars on the road, but you can’t hear any horns, the streets are so quiet it’s as if they’re not streets, there’s none of the energy of a major province-level Chinese city.

Bucharest

I'm in Bucharest, Romania, one of the great old cities of central Europe.  David Schmidtz, Jerry Gaus, Virgil Storr.... good times.  Except that they didn't get my luggage here.  A lonely feeling, to be in a country where you don't even read the alphabet, and no luggage.  (Just got delivered!  Hooray!  Underwear!)

Went out to dinner last night.  And Jerry Gaus, finding himself in Bucharest, a 600 year old city of 2 million sometimes referred to as "Little Paris," just had to order the fajitas in a fried taco shell.  Since he lives in Arizona, he never gets any Mexican food, I guess.

Anyway, this was so astonishing, I had to take a photo.  It was dark, but...

Caption Contest: TSA Version

Pelsmin sends this photo.  Suggests it would be a good caption contest, and then tells the story.  He's right!  So, please do submit your favorite caption, in comments:

Please do click for a more intrusive image....  And then, the story.  As Pelsmin tells it:

I loaned my wife my old Hartmann bag for a trip to her High School Reunion.  I repeatedly assured her that I had carried the bag onto hundreds of flights over the years, although I always limited myself to three days clothing including one pair of shoes.  For her, three days meant three days times three outfits a day, and that meant at least 8 pairs of shoes.  Long story short, she ran into a jam long before the overhead bin came into play.

As Hamlet put it, or would have, if he had seen this...

Heaven and earth,
Must I remember? Why, she would pack more shoes
As if increase of appetite had grown
By what it fed on, and yet, within a weekend—
She hardly wore any of them!—Overpacking, thy name is woman!—

Beer Foam

Not sure if this is the science of beer foam, or just the beer foam of science.

But it's interesting.  Interesting also that women like lacing.  I had never heard that.

Nod to MAG

Competition, or Clutter? Counties....

Federal Competition and Economic Growth

John William Hatfield & Katrina Kosec
Journal of Public Economics, forthcoming
Abstract:  This paper exploits exogenous variation in the natural topography of the United States to estimate the causal impact of inter-jurisdictional competition on income growth. We find that doubling the number of county governments in a metropolitan area leads to a 17% increase in the average annual growth rate of earnings per employee over 1969–2006, and a 10% increase in 2006 income per employee. Decomposing income effects using 2000 Census worker-level data, we find that approximately half of the effect stems from making workers more productive, while the other half comes from changing the composition of the workforce and inducing workers to work more hours. We also present evidence that inter-jurisdictional competition leads local governments to raise more in taxes, spend more, and issue more debt, but does not help them obtain more inter-governmental transfers. However, the additional cost from this increase in expenditures to a median-wage employee is much smaller than the increase in that employee's wages due to greater inter-jurisdictional competition.

Nod to Kevin Lewis

Development Ergonomics

We tend to want to build roads, and dams.   For development.  To "help."  Because those things make us feel good.  And because American companies end up making money.

But what people actually need is something more along the lines of sturdy plastic containers that can be sterilized, and covered.  Sturdy bags that can be reused.

And, quite possibly, this.

 

Mmmmm....salmon

Raoul writes from Seattle: "The experts agree: Line-caught salmon are the best!"

The Devil is in the Details

Monetary economics superstar M. Woodford has made a big splash with his 97 page opus belittling the Fed's QE moves and calling for (more or less) NGDP targeting.

Here's Krugman on the paper.

There are three big problems with Woodford's approach. (1)The macro model he uses to produce his results, (2) his assumption that the Fed can commit to anything not in their period by period best interest, and (3) the way he completely ignores real political constraints faced by the Fed.

Let's talk about each of these.

The Model:

 It is laid out in Eggertsson & Woodford (2003).

First off, here are a few quotes from the paper:

For simplicity we shall assume complete financial markets and no limits on borrowing against future income.

Our model abstracts from endogenous variations in the capital stock, and assumes perfectly flexible wages (or some other mechanism for efficient labor contracting), but assumes monopolistic competition in goods markets, and sticky prices that are adjusted at random intervals in the way assumed by Calvo (1983), so that deflation has real effects. We assume a model in which the representative household seeks to maximize a utility function

Real balances are included in the utility function, following Sidrauski (1967) and Brock (1974, 1975), as a proxy for the services that money balances provide in facilitating transactions. 

 The paper presents no evidence that the model is consistent with the data, no evidence that it is capable of producing the kind of economic situation in which we currently labor, no evidence that it has any kind of forecasting power.

All conclusions about policy drawn by Woodford are contingent on the maintained assumption that the underlying model of the economy is correct. And we know that it decidedly is not!

Can the Fed commit?

I am a broken record on this subject, but in its current configuration, there is no way the Fed can credibly commit to an optimal but time-inconsistent policy.  The forward guidance / NGDP targeting solutions require the public to believe that the Fed will continue to tolerate inflation higher than they would like AFTER THE ECONOMY RECOVERS. Krugman put it best when he said the Fed must credibly commit to behave irresponsibly!  They can't because there is no mechanism that forces them to deliver the policy after the economy actually recovers.

All we can ever hope for from the Fed in its current configuration are time-consistent polices. Woodford's is not.

Here's Krugman again, giving a not technically correct but yet informative explanation of the problem:

What Mike demonstrates is the point that liquidity-trap worriers have been making for a long time – actually, ever since my 1998 piece. Current monetary policy is indeed ineffective in a liquidity trap; but there is still scope for central bank action in the form of credible commitments to keep monetary policy easy in the future, when the economy is no longer at the zero lower bound. The trouble is how to make those credible commitments. 

Actually, it’s a two-stage problem. First you have to convince the central bank itself that it’s a good idea to signal that you won’t return to normal policy (say a standard Taylor rule) as soon as the economy lifts off from the liquidity trap; then you have to convince the private sector that the central bank will not, in fact, just revert to type once the crisis is past.

There's even a third problem. There's no way to convince the private sector that the Fed won't simply revert to type because when the time comes, the Fed will have no incentive not to revert to type!

What about Politics?

Suppose by some amazing coincidence that Woodford's policy conclusions would also follow from the true model of the economy. Suppose also that we can just dismiss all the literature on time inconsistency by commanding the Fed to "just do its job". We still have the problem that the Fed is not independent of politics.

Romney has already said he wouldn't re-appoint Bernanke. There's at least a .4 chance he'll be President. What hope would a Fed have of running a loose policy after the economy recovers in an all Republican government?

The Republicans control the House now. The Republican party seems to be flirting with a return to the Gold Standard! And the Fed is gonna announce, oh, we're gonna keep rates at zero even after the economy recovers?

The Fed has bosses. A sizable fraction of those bosses will never sign off on the kind of polices Woodford advocates. They would be doing so for the wrong reasons, but those ignorant gold-bug bosses would actually be extremely likely to be right.

LP Convention Speech, 2008

If (a) you never saw the full video (30 minutes, I'm warning you) of my 2008 Libertarian National Convention keynote speech, and (b) want to see it....here it is!

 

Harvard students fight back!

At least some of the 100+ accused cheaters are not taking the heat lying down.

Their main excuses seem to be:

1. the class was supposed to be easy

2. plenty of other people cheated in the past.

Not sure who teaches logic at Harvard, but maybe the powers that be should check the syllabus?

Be Still, My Heart

Listen to Your Heart: When False Somatic Feedback Shapes Moral Behavior

Jun Gu, Chen-Bo Zhong & Elizabeth Page-Gould
Journal of Experimental Psychology: General, forthcoming

Abstract:
A pounding heart is a common symptom people experience when confronting moral dilemmas. The authors conducted 4 experiments using a false feedback paradigm to explore whether and when listening to a fast (vs. normal) heartbeat sound shaped ethical behavior. Study 1 found that perceived fast heartbeat increased volunteering for a just cause. Study 2 extended this effect to moral transgressions and showed that perceived fast heartbeat reduced lying for self-gain. Studies 3 and 4 explored the boundary conditions of this effect and found that perceived heartbeat had less influence on deception when people are mindful or approach the decision deliberatively. These findings suggest that the perceived physiological experience of fast heartbeats may signal greater distress in moral situations and hence motivate people to take the moral high road.

----------------------

How Quick Decisions Illuminate Moral Character

Clayton Critcher, Yoel Inbar & David Pizarro
Social Psychological and Personality Science, forthcoming

Abstract:
It has been suggested that people attend to others’ actions in the service of forming impressions of their underlying dispositions. If so, it follows that in considering others’ morally relevant actions, social perceivers should be responsive to accompanying cues that help illuminate actors’ underlying moral character. This article examines one relevant cue that can characterize any decision process: the speed with which the decision is made. Two experiments show that actors who make an immoral decision quickly (vs. slowly) are evaluated more negatively. In contrast, actors who arrive at a moral decision quickly (vs. slowly) receive particularly positive moral character evaluations.  Quick decisions carry this signal value because they are assumed to reflect certainty in the decision (Experiments 1 and 2), which in turn signals that more unambiguous motives drove the behavior (Experiment 2), which in turn explains the more polarized moral character evaluations. Implications for moral psychology and the law are discussed.