The Eurozone: a PSST Story

He does not call it that, of course, but in the new Journal of Economic Perspectives, Christian Thimann writes,

widespread structural barriers make job creation in these countries far more arduous than in many other advanced economies, and even more arduous than in some key emerging economies and formerly planned economies. Structural barriers to private sector development are particularly widespread in the areas of labor market functioning, goods market functioning, and government regulation. Evidence from the World Economic Forum’s Global Competitiveness Index and the World Bank’s “Doing Business” dataset confirms the immense size and persistence of these barriers, despite improvements in some countries in recent years.

Playing the Status Game

Tyler Cowen writes,

So much of debate, including political and economic debate, is about which groups and individuals deserve higher or lower status. . .

I hypothesize that an MR blog post attracts more comments when it a) has implications for who should be raised and lowered in status, and b) has some framework in place which allows you to make analytical points, but points which ultimately translate into a conclusion about a).

My comments:

1. Lowering another group’s social status is the most powerful message of all. It is more powerful than raising the status of those who one likes.

2. It would be an interesting exercise in honesty for everyone who uses social media for political discussions to say, “My main purpose is to lower the status of the following three groups. . .” What would my answers be? MIT economists would be high on the list. Also progressives. And people who align entirely on one of the three axes.

3. How much of writing in the social sciences and the humanities (can you broaden this to other academic disciplines?), including research papers and journal articles, is motivated and made popular by the way that it affects relative group status?

You can take man out of tribal society, but you cannot take tribal society out of man.


‘Scott Alexander’ writes,

But r = 0.23 means the percent of variance explained is 0.23^2 = ~5%. If some Social Darwinist organization were to announce that they had evidence that who your parents were only determined 5% of the variance in wealth, it would sound like such overblown strong evidence for their position that everyone would assume they were making it up.

His point is that some pundits have used a recent study to claim that inherited wealth is really, really important, even though numerically the study fails to show that.

Suppose we define mathiness as people making misleading, ideologically loaded claims about what their theorems prove. It seems fair to suggest that statisticiness is a similar problem.

A Robot Cambrian Explosion?

The Journal of Economic Perspectives, which Timothy Taylor has been editing since its inception, has a symposium on robotics. One of the articles is by Gill A. Pratt.

The exponential growth in computing and storage performance has led researchers to explore memory-based methods of solving the perception, planning, and control problems relevant to the development of additional degrees of robot autonomy. Instead of decomposing these tasks into a set of hand-coded algorithms customized for particular circumstances, large numbers of memories of prior experiences can be searched, and a solution based on matching prior experience is used to guide response.

… human beings communicate externally with one another relatively slowly, at rates on the order of 10 bits per second. Robots, and computers in general, can communicate at rates over one gigabit per second—or roughly 100 million times faster. Based on this tremendous difference in external communication speeds, a combination of wireless and Internet communication can be exploited to share what is learned by every robot with all robots. Human beings take decades to learn enough to add meaningfully to the compendium of common knowledge. However, robots not only stand on the shoulders of each other’s learning, but can start adding to the compendium of robot knowledge almost immediately after their creation.

He does not predict when it will occur, but he thinks that at some point these sorts of capabilities will result in a rapid increase in robot intelligence.

I Think He Wants Betting Markets in Non-profits

Neerav Kingsland writes,

it is important for there to be a public, meaningful signal against efforts that are likely to fail.

He laments that there is no way to short a non-profit. But you can think of a short sale as a side bet. As Robin Hanson has repeatedly emphasized, betting markets in opinions can be used to extract information of the sort that Kingsland discusses. You could set up a betting market in which participants wager on the likely success of non-profit initiatives. Of course, whether managers of an initiative would heed the opinion of the betting market is another matter.

Puzzling Statistics from the GDP Factory

Scott Sumner writes,

This 4 and 1/2 years of sub-2% growth (on average) occurred during a period of rapidly falling unemployment, and above trend employment growth

The implications for productivity growth are terrible. Supposedly, firms got rid of their ZMP workers during the recession. Are we saying that subsequently they were hired back???

Again, I do not trust data that treats the entire economy as a GDP factory. If I had to bet, I would go with the Goldman Sachs view that inflation is over-stated, which means that real GDP growth has been under-stated.

Partially Vertebrate College President

From a statement by the University of New Hampshire:

The associate vice president for community, equity and diversity removed the webpage this morning after a meeting with President Huddleston. The president fully supports efforts to encourage inclusivity and diversity on our campuses. He does not believe the guide was in any way helpful in achieving those goals. Speech guides or codes have no place at any American university.

Pointer from Alex Tabarrok, who commends President Huddleston.

An even more vertebrate college president would remove not just the web page but also administrators with titles like “associate vice president for community, equity and diversity.”

Occupational Licensing

The Obama Administration reports a sort of meta-analysis. One excerpt:

Estimates suggest that over 1,100 occupations are regulated in at least one State, but fewer than 60 are regulated in all 50 States, showing substantial differences in which occupations States choose to regulate. For example, funeral attendants are licensed in nine States and florists are licensed in only one State.

Pointer from Tyler Cowen.

I have only skimmed the report, but I did not see a reform that was suggested at dinner the other night. That is, licensing should not be delegated to boards that consist solely of incumbent practitioners.

Against Identical Expectations

Noah Smith writes,

rational expectations might really be wrong. People might make systematic errors, thinking that booms or busts will last forever. If that’s the case, then it will require the economics profession to abandon one of its strongest orthodoxies. But the payoff could be big if the profession devises models that successfully explain phenomena like bubbles and crashes.

Pointer from Mark Thoma.

Smith cites (preliminary?) research by Jesse Bricker, Jacob Krimmel and Claudia Sahm, who

looked at data from the Survey of Consumer Finances, from before and after the housing crash in 2008. They found that more optimistic ZIP codes — that is, places where people had unrealistically high expectations for their own incomes — were more likely to overpay for houses in the bubble run-up before 2008. These overoptimistic people also took on more debt, and they were more likely to increase borrowing in response to rising house prices.

I have not found a write-up of this work. UPDATE: slides here. But my thoughts:

1. “Rational expectations” is one of an entire class of expectations models that I reject. I call this class “identical expectations,” because it assumes that every individual has the same model of the market and the same information, thus arriving at the same set of expectations. I find this both unrealistic and, as Frydman and Goldberg have pointed out, un-Hayekian, because it assumes away any sort of local knowledge.

2. If we are going to attempt a simple model of expectations, then I would suggest one in which there are two types of traders–momentum traders and contrarian traders. Momentum traders live by the maxim “the trend is your friend.” When prices have risen recently, they expect them to continue to rise. Contrarian traders live by the maxim, “if something cannot go on forever, it will stop.” When prices have risen recently to the point where they are above historical norms relative to fundamental measures of value, contrarian traders expect them to fall.

Momentum traders never see bubbles. Contrarian traders see bubbles everywhere.

Economists tend to be contrarian traders. Robert Shiller is the leading exemplar of this. Not all economists share his views, of course, but hardly any economist would confess to being a momentum trader.

Still, I think that there are times and situations where momentum trading dominates. Both Shiller and John Cochrane see momentum trading as something that can persist for a while in housing markets, because of the high costs facing traders who would try to take advantage of even well-founded contrarian views.

Update: Smith recommends a paper by Hong and Stein.