Monthly Archives: September 2014

DeLong-Term Interest Rates

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Brad DeLong writes,

when I look at the sub-zero 5-Year TIP and at the 0.6%/year 6-10 Year TIP I read that as Ms Market decoupling its inflation expectations from its real growth and real interest rate expectations, and not in a good way.

Read the whole thing. Pointer from Mark Thoma. My thoughts:

1. To me, the biggest macroeconomic/financial mystery today is the low ten-year real interest rate.

2. Ten years ago, the biggest macroeconomic/financial mystery to me was the low ten-year real interest rate. That, combined with loose mortgage credit standards, fed a housing bubble.

3, Why aren’t corporations borrowing like crazy? Issuing long-term bonds to buy back stock would seem akin to owning a money-printing press. (And yes, this is an argument that stocks are not overvalued.)

4. One possible story is that savers in China and Russia do not trust their domestic financial markets, so that their savings are pouring into the U.S., and from here spilling over to western Europe. But that would presumably make it expensive for Chinese and Russian borrowers. Is that the case?

Gregory Clark on Immigration and Income Distribution

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Self-recommending, although I could raise many objections to his conclusion. Some excerpts:

There is reason to believe that many recent migrants to both the United States and Europe will have a much more difficult time than their predecessors. Meanwhile, the countries in which they settle are less likely to see the benefits of immigration as they experience heightened social tensions and widening social inequality. Policymakers would be wise to take those risks into account. Rather than focus on policies for integrating new immigrants, they should concentrate on avoiding selection policies that threaten to create near–permanent ethnic or religious underclasses.

…countries that selected elite immigrants to begin with now have high-performing immigrant classes. For example, the United Kingdom selects immigrants based more on education and skills. As a result, African, Chinese, and Indian immigrants outperform their British counterparts; although children of white British parents born between 1963 and 1975 attained on average 12.6 years of education, children of African migrants stayed in school for 15.2 years, those of Indian migrants for 14.2 years, and those of Chinese migrants for 15.1 years.

Pointer from Reihan Salam.

UPDATE: Also self-recommending is this Greg Clark podcast. Pointer from Jason Collins.

Being Charitable to those who Disagree

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Maria Popova quotes D.C. Dennett on how to argue:

1. You should attempt to re-express your target’s position so clearly, vividly, and fairly that your target says, “Thanks, I wish I’d thought of putting it that way.

2. You should list any points of agreement (especially if they are not matters of general or widespread agreement).

3. You should mention anything you have learned from your target.

4. Only then are you permitted to say so much as a word of rebuttal or criticism.

Intellectually, I think only the first step is important. It is analogous to Bryan Caplan’s ideological Turing test.

Why Published Results Can be Unreliable

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Mark Peplow reports on research by Neil Malhotra, who tracked research projects to compare those that were published with those that were not.

Of all the null studies, just 20% had appeared in a journal, and 65% had not even been written up. By contrast, roughly 60% of studies with strong results had been published. Many of the researchers contacted by Malhotra’s team said that they had not written up their null results because they thought that journals would not publish them, or that the findings were neither interesting nor important enough to warrant any further effort.

Pointer from Mark Thoma.

This is not shocking news. Can anyone find Malhotra’s paper?

The Book on SecStag

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Timothy Taylor writes,

Coen Teulings and Richard Baldwin, who have edited a useful e-book of 13 short essays with a variety of perspectives on Secular Stagnation: Facts, Causes and Cures. In the overview, they write: “Secular stagnation, we have learned, is an economist’s Rorschach Test. It means different things to different people.”

Read his whole post.

The interesting secular trends include low real interest rates, low productivity growth, and declining labor force participation among prime-age workers.

From a conventional AS-AD perspective, low real interest rates are a demand-side phenomenon. The other two are supply-side phenomena. I wish the secstag folks would get together and sort this out.

I think that the most important secular trends are:

1. The New Commanding Heights. That is, the shift in the economy toward a lower share of goods consumption and a higher share of consumption of education and health care services. The New Commanding Heights are sectors in which productivity is difficult to measure and government interference is rampant.

2. The Great Factor-price Equalization. That is, the ability of workers with a given level of skills in China and India to compete with workers of equivalent skills in the U.S. This benefits the median worker in China and India as well as high-skilled workers in all countries, but it threatens the median worker in the U.S.

3. Vickies and Thetes. Or what Charles Murray calls Belmont and Fishtwon. In the U.S., there is extreme cultural sorting going on. People with high intelligence and conscientiousness are moving in one direction, and people who are low in those traits are moving in the other direction.

I think that (1) explains the low productivity growth. It could be partly a measurement problem and partly a problem of government putting sand in the gears.

I think that (2) and (3) explain the labor force participation problem.

What about low real interest rates? This one has puzzled me for a decade. Is it possible that (1) is the explanation? That is, the New Commanding Heights are not nearly as capital-intensive as the old commanding heights of steel, electric power, and transportation. Also, investment may be deterred because of the way government affects these sectors.

Culture and Institutions

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Bryan Caplan writes,

Simple economics implies that government enterprises should be far worse than they really are.

I am reading (admittedly a bit late to the party) Peter T. Leeson’s collection of essays on anarchy. In at least one of the essays, he takes the view that the cultural margin is more important than the institutional margin. That is, he seems to be saying that there are no societies in which anarchy will work well but government would work poorly, or vice-versa. Instead, on the one hand there are well-developed cultures, which could have good government or good anarchy, while on the other hand there are poorly-developed cultures, which could have only bad government or bad anarchy.

I have referred often to the debate about the relative primacy of culture and institutions. I tend to side with the culturalists. The classic institutionalist counter-example is Korea. I think that it is reasonable to suggest that North Korea would be much improved under anarchy. But in general, I think that Leeson’s view, which I take to be one of cultural primacy, holds.

Politics, Reasoning, and Group Affiliation

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Daniel Kahan writes that one should view culturally motivated reasoning (CMR)

as a form of reasoning suited to promoting the stake individuals have in protecting their connection to, and status within, important affinity groups. Enjoyment of the sense of partisan identification that belonging to such groups supplies can be viewed as an end to which individuals attach value for its own stake. But a person’s membership and good standing in such a group also confers numerous other valued benefits, including access to materially rewarding forms of social exchange (Akerlof & Kranton 2000). Thus, under conditions in which positions on societal risks and other disputed facts become commonly identified with membership in and loyalty to such groups, it will promote individuals’ ends to credibly convey (by accurately conveying (Frank 1988)) to others that they hold the beliefs associated with their identity-defining affinity groups. CMR is a form of information processing suited to attaining that purpose.

That sounds right to me. I wonder if Kahan would consider the possibility that this description applies as much to climate-change activists as it does to their opponents.

Related and recommended: Scott Sumner’s post on intellectual decay.

Health Care Innovation

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I review the book by Jonathan Bush and Stephen Baker. An excerpt:

Bush argues that for most medical services, flagship research hospitals are high-cost providers. He believes that in a rational marketplace, the leading hospitals would have to specialize in particular areas of expertise. A hospital with unique skills at treating a certain type of cancer might attract patients from all over the United States with that cancer. However, it would not treat local patients for ailments that are more common and more easily treated. Instead, those cases would be handled by smaller community hospitals or clinics.