Wesley Mouch Outcome

Detroit News reports,

Fisker Automotive Inc. filed for Chapter 11 bankruptcy on Friday and the Energy Department sold its green-energy loan for $25 million to investor group Hybrid Tech LLC. Taxpayers will lose $139 million on the $192 million loan to the failed electric vehicle startup, the Energy Department confirmed

I referred to energy secretary Steven Chu as Wesley Mouch. Of course, right now the Wesley Mouch award is more likely to go to Obamacare than to the crony-capitalist “green energy” loan guarantees. Competition is tough.

Clever Policies, Hard to Execute

Timothy Taylor writes,

But the EITC is a program that involves complex rules for eligibility and size of payments, much more complex than Social Security. The EITC is aimed at low-income people, many of whom have economic and personal lives that are in considerable flux and many of whom have limited ability to deal with detailed paperwork, unlike the health care providers who receive Medicare and Medicaid payments. The envisioned health insurance exchanges are likely to end up serving many more people than the EITC. The complexity of decisions about buying health insurance is greater than the complexity of qualifying for cash payments from the EITC. When people’s eligibility for subsidies is moving and changing each year, as it is for the EITC and will also be for the health insurance exchanges, it will be difficult for the federal government to sort out eligibility. And as the complexity of the rules rises, it will spawn a network of people to help in filling out the forms, most of whom will be honest and forthright, but some of whom will focused on making people eligible for the largest possible subsidies, with little concern for legal qualifications.

Read the whole thing. Wonks should keep in mind that complex approaches that attempt to fine-tune incentives tend to be difficult to execute.

Vaclav Smil

Interviewed here. He comes across as the opposite of George Gilder, in that he is very much a materialist.

we consume so many more products that there’s been no absolute dematerialization of anything. We still consume more steel, more aluminum, more glass, and so on. As long as we’re on this endless material cycle, this merry-go-round, well, technical innovation cannot keep pace.

Pointer from Tyler Cowen.

I once got to hike with Smil during a break in a conference put together by John Baden. That was a treat.

Hydraulic Modeling

[Irving] Fisher designed a hydrostatic machine to illustrate the economic “‘exchanges’ of a great city” that revealed the ways that the values of individual goods were related to one another. When Fisher adjusted one of the levers, water flowed to affect the general price level of the range of goods. The device resembled a modern-day foosball table but with various cisterns of different shapes and heights representing individual consumers and producers….A series of levers along the side of the machine altered the flow of water, thus changing the price level not only for an individual but throughout the entire economy. The machine revealed the way in which prices, supply, and consumer demand interrelated. For example, if the price of a good fell (and the level of water rose), more consumers would purchase it, and a new equilibrium would emerge.

The quote is from Fortune Tellers, a historical work by Walter A. Friedman that I received as a review copy. He tries to recover the era of economic forecasting between 1900 and 1940, before the computer and before Keynesian economics.

Macro Wars: They’re Ba-a-a-ack!

Two pointers from Mark Thoma.

1. Simon Wren-Lewis writes,

An alternative and I now think better, vision would give more emphasis to how economics developed. Economic history would play a central role. Economic theory would be seen as responding to historical events and processes. For example placing Keynesian theory in the context of the Great Depression is clearly useful, given the events of the last five years. I think it is also important to recognise the links between economic theory and ideology. This is partly to understand why governments might not act on the wisdom of economists, but it also leads naturally to recognising that economists need to adapt to the social and political context in which they work. We should also be more honest that our wisdom might be influenced by ideology. Given the limits to experimental and econometric evidence, but with a very clear axiomatic structure, methodology is always going to be an important issue in economics.

Which reminds me, I need to recover the momentum on the book I am writing.

2. Miles Kimball and Noah Smith write,

Patrick Kehoe, one of the economists dismissed from the Fed, is a key figure in a school of economics called “Freshwater Macroeconomics” (the other, Ellen McGrattan, is his frequent co-author). The labels “Freshwater” and “Saltwater” go back to the arguments and new ideas generated by the double-digit inflation in the 1970s.

I wrote about this conflict over a decade ago. Back then, I considered myself on the freshwater side. Now I am more “a pox on both your houses.”

Kimball and Smith describe the appeal of each school of thought. My book will attempt to do that, also. But I also will explain why I came to reject both schools and instead turn to PSST.

Mc has soared

John C. Williams writes,

since the start of the recession in December 2007 and throughout the recovery, the value of U. S. currency in circulation has risen dramatically. It is now fully 42% higher than it was five years ago

Pointer from Timothy Taylor’s column in the Journal of Economic Perspectives.

Williams argues that people are holding cash as a safe asset, in the form of $100 bills. Keep in mind, though, that another source of the demand for $100 bills is the underground economy.

Failure is the Most Likely Option

Clay Shirky writes,

Failure is always an option. Engineers work as hard as they do because they understand the risk of failure. And for anything it might have meant in its screenplay version, here that sentiment means the opposite; the unnamed executives were saying “Addressing the possibility of failure is not an option.”

He talks about what I call the suits vs. geeks divide. Recall that I originally coined this to describe the unwillingness of financial executives to listen to geeks who worried about the risk in mortgages.

When a large organization, such as government or a legacy media organization, undertakes a new initiative, they are in effect starting a new business. Most start-ups fail, so that failure is in fact the most likely outcome. But if you have spent your whole life playing office politics (or real politics) to get to the top of an established organization, you may not have had any training in dealing with something as fragile as a new enterprise.

If you start a new enterprise, it is a good idea to start small and build incrementally. In fact, that is how President Kennedy’s initiative to put a man on the moon was carried out.

But the health care law was designed to be big and complex from the beginning, and nobody wanted to allow for the possibility of failure. Even now, many progressives deny that it will fail. My sense is that the law is in fact a total failure, with the web site perhaps the least of its problems.

Joel Mokyr on Economic Growth.

He talks with Russ Roberts.

And so people were asking, could the Chinese have built a steam engine? And the basic answer, is: No, unless they had discovered what the Europeans discovered in the 17th century, which is the existence of an atmosphere.

Later,

my example of a very small invention for which we could ask this question is anesthesia. So you go to somebody who is about to have surgery and you ask him, How much would you demand to be paid if I took out your appendix without anesthetizing you, without putting you to sleep? Nobody would agree. The sum would be infinite. What can anesthesia contribute to GDP when it was introduced in the 1850s and 1860s? Russ: Could not be very much. Guest: Nothing. It’s very small. But that is exactly the kind of thing we fail to account for in our calculations. So that’s why I gave that whole list of things; and we could make this list infinitely large. It is the small things that actually don’t amount to an awful large part of our income and product that actually have improved life a great deal and that we really wouldn’t want to do without any more.

Recommended.

Skeptics on Pre-School

Grover J. “Russ” Whitehurst writes,

Unfortunately, supporters of Preschool for All, including some academics who are way out in front of what the evidence says and know it, have turned a blind eye to the mixed and conflicting nature of research findings on the impact of pre-k for four-year-olds. Instead, they highlight positive long term outcomes of two boutique programs from 40-50 years ago that served a couple of hundred children.

Pointer from Tyler Cowen. I take the first sentence to be a swipe at James Heckman.

Whitehurst summarizes the results of a larger, more recent study, and concludes

This is the first large scale randomized trial of a present-day state pre-k program. Its methodology soundly trumps the quasi-experimental approaches that have heretofore been the only source of data on which to infer the impact of these programs. And its results align almost perfectly with those of the Head Start Impact Study, the only other large randomized trial that examines the longitudinal effects of having attended a public pre-k program. Based on what we have learned from these studies, the most defensible conclusion is that these statewide programs are not working to meaningfully increase the academic achievement or social/emotional skills and dispositions of children from low-income families.

I received a review copy of The Smart Society, by Peter D. Salinas, a former provost for the State University of New York. Unlike me, he takes a fairly optimistic view that school reform can have a big effect on outcomes. Continue reading