Monthly Archives: August 2015

Shake the Kaleidoscope

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Josh Constine of TechCrunch reports,

Forbes is building a social networking app exclusively for these millennial leaders, which will launch at its 30 Under 30 Summit in Philadelphia on October 4. The goal is to stoke this community into somewhat of an alumni network that attracts more powerful youngsters to the Forbes empire. It will offer a directory of members, a feed where they can post social media stories or polls, and the option to message each other.

This ties in very loosely to something I have been thinking about, following a conversation with the UK’s Stephen Brien. That is, from a PSST perspective, what can be done to combat a recession? I talked about how World War II created new social ties among American servicemen, leading to businesses being formed by buddies who had met during the war. Stephen coined the expression “shaking the kaleidoscope” to describe doing something that might lead people to create new patterns of specialization and trade.

Experiments with new forms of social networking might be a way to shake the kaleidoscope. Is there a way to foster better connections between people in small-town Ohio and people in coastal cities? Between loud-mouthed sales people and quiet engineers?

When I started an Internet business in 1994, I kept in mind a documentary called “The Compleat Beatles,” in which early on the narrator says that “They were lucky, meeting the right people and playing the right clubs at critical moments in their careers.” This led me to try a lot of networking opportunities, hoping that I would meet the right people. Almost all of my efforts led nowhere, but two of them brought me my key partner and my key software engineer, without whom I would have had no chance. You could say that I shook the kaleidoscope a bunch of times, and a couple of times I got lucky.

Anyway, what I have in mind is not an app or a local happy hour. I am thinking in terms of in-person events that combine people from different backgrounds and different locations. Conferences sort of do that, except that people often have very similar backgrounds and many conference organizers put too much focus on speakers and not enough on creating opportunities for connection.

Suggestions welcome.

The Null Hypothesis, Compounded

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In the WaPo, Lindsey Layton reports

A new study of 10,000 teachers found that professional development — the teacher workshops and training that cost taxpayers billions of dollars each year — is largely a waste.

The Null Hypothesis is this:

1. Take any educational intervention
2. Conduct a rigorous controlled experiment.
3. Look for results that do not fade out within a year or two.
4. If you find apparent success, try to replicate it
5. You will not find significant effects in all of steps (1) – (4)

For teacher training to work, you have to deal with the null hypothesis at two layers. First, you have to find an intervention that significantly affects teachers. Then that intervention has to significantly effect students. This is the null hypothesis compounded. In Building a Better Teacher, education journalist Elizabeth Green claims that some methods of teacher training survive (1) – (3), but I remained skeptical of (4). Green was interviewed by Russ Roberts in an econtalk episode about a year ago.

Paul Romer and I Could Not Disagree More

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He writes,

During my time at MIT, Robert Solow was harshly critical of the new classical macro models pioneered by Robert Lucas, dismissive in a way that seemed to me to skirt uncomfortably close contempt. I recall hearing the same type of criticism from Frank Hahn, who must have been visiting MIT. Looking back, perhaps I misinterpreted them because I was not familiar with the sarcasm and put-downs that were a part of British intellectual life that Solow had to confront in his exchanges with Joan Robinson. But if it sounded like contempt to me, others may have heard it the same way.

…The alternative to derision would have been for skeptics to embrace and extend. This was what Stan Fischer and Rudi Dornbusch, who were supervising almost all of the Ph.D. students at MIT doing anything related to macro, were quietly doing at this time. Fischer, Dornbusch, and their students absorbed the rebel critique of traditional macro, saw what something was missing in the first generation of rebel models, and set about extending them. As a result, Fischer and Dornbusch trained a cohort of Ph.D. students at MIT who put the tools of modern macro to work and as Krugman has observed, turned out to be unusually influential. If Dornbusch and Fischer had set the tone for the response to Lucas and his followers, things might have turned out differently. But because of the inherent instability of acrimony, grievance, and factionalism, they and their students could not undo the effect of the more hostile response.

Pointer from Mark Thoma.

I disagree with this so much that I can actually feel my anger.

1. Romer’s point is that Solow set a bad tone for macro, and all difficulties in the subject flowed from that. I call baloney sandwich. Solow did not set the tone for discussions in macroeconomics in this period. As Romer points out, by this point Fischer and Dornbusch dominated macro at MIT at this point.

2. Solow’s problem with Lucas was that Solow thought that reality should take precedence over microfoundations. Solow equated Lucas’ approach to macro with deciding that because one’s theory could not explain how a giraffe could pump adequate blood to its head that one had proven that giraffes do not have long necks.

3. I think that one problem in macro is that there are many theories that are consistent with observed reality. Freshwater macro happens to be one of the few that does not reconcile with reality. It deserves Solow’s disdain.

4. Romer thinks of Dornbusch and Fischer as heroes. To me, they are villains. They pushed the representative-agent, rational-expectations nonsense that is good for nothing but mathematical, er, self-abuse.

5. Even though Solow is a Keynesian partisan and I am not, I still feel connected to him because we share a view of what is wrong with the way macro has been pursued since the 1970s.

Someone recently emailed me that I should put my memoirs of a would-be macroeconomist on Amazon. For now, it’s freely available, and I think that Romer and others interested in his posts should read it. In fact, if you want to read it on Kindle, I am pretty sure that this file will work.

A Good Sentence on Foreign Policy

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From a commenter:

(Good) Foreign policy and military intervention is about figuring out actual intentions and capabilities without making self-fulfilling prophecies.

If each adversary judges the others’ intentions as hostile, then you get war as the self-fulfilling prophecy. So you want to err on the side of not judging others’ intentions as hostile. But when others’ intentions truly are hostile, judging them otherwise is a mistake.

Make Working Matter

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Raven Molloy, Christopher L. Smith, and Abigail Wozniak write,

internal migration within the United States has fallen continuously since the 1980s, reversing the upward trend that occurred earlier in the 20th century.

Pointer from Richard Florida.

The kaleidoscope is not shaking so much, which may impede the formation of new patterns of specialization and trade. What is that? The authors write,

We find a decline in the wage gain associated with changing employers, but no change in the wage gain
associated with staying at the same employer (i.e. the return to firm-specific tenure). We find qualitatively similar results in the Current Population Survey (CPS) and Panel Study of Income Dynamics (PSID). Although our evidence is only descriptive, it suggests that the distribution of the relevant set of outside offers has shifted in a way that makes labor market transitions—and hence geographic transitions—less desirable to workers.

So, maybe some of the wage differentials that used to cause people to migrate within the U.S. have been arbitraged away. But what about the differential between working and not working? Shouldn’t that be enough to motivate people to change locations?

My answer would be that the accumulation of fragmented means-tested programs has produced a high implicit marginal tax rate on people who do not have steady work. This gets back to the idea of consolidating those programs into a single flexible benefit program with a clear, low marginal tax rate.

This Might Change My Mind about Iran

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Awhile back, I wrote about the Iran deal. I do not see a sanctions program as stable, so I took a positive view of the deal. However, reading this piece by Amir Taheri, on a recent book by a key Iranian leader, gave me pause.

“The solution is a one-state formula,” he declares. That state, to be called Palestine, would be under Muslim rule but would allow non-Muslims, including some Israeli Jews who could prove “genuine roots” in the region, to stay as “protected minorities.”

Read the whole thing. All I could think was, “Another Mein Kampf.”

I do not know what one does about such a regime. I still think that sanctions are not a good answer. They are an act of war, and much of their pain is inflicted on innocent civilians.

But sitting down and negotiating does not seem like a solution, either.

I suppose that Taheri’s piece could be misleading (I have not read the book myself). If not, then I think that the probability of a real war is quite high, and I do not see the deal reducing that probability.

What Math Does and Does Not Do in Economics

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Noah Smith updates us on the Paul Romer’s “mathiness” critique. He translates (without necessarily agreeing with) Romer as saying

If I could tell the freshwater economists just one thing, it would be that the rest of economics is doing things differently. Really. We’re out here being honest with each other, trying to get to the truth together, not politicking for our own pet theories. We’re being scientists. You can too. If you get outside your bubble, you’ll see I’m telling the truth.

Pointer from Mark Thoma. My comments:

1. Just as a point of clarification, in the debate between freshwater and saltwater economists, I am certainly not an advocate for freshwater economists. I am definitely in the “plague on both your houses” camp.

2. For this post, I would like to stipulate that saltwater economists are as detached and objective as they claim to be. Put aside my doubts about that for now.

3. What math can do is rigorously connect assumptions with conclusions. You manipulate the equations to show that the conclusions follow from the assumptions.

4. As Noah has pointed out on other occasions, economics differs from physics in that physicists usually can undertake direct tests of their assumptions, while economists generally cannot.

What point (4) means is that when we prove that assumptions a, b, and c together imply outcome X, and we instead observe outcome Y, we have no way of independently testing which of assumptions a, b, and c is untrue in the real world. Because there are so many plausible assumptions available to economists, this means that real world does not constrain economic models nearly as much as it does in physics.

Assumptions persist in economics as they get copied from paper to paper. That is, because of a combination of convenience and path dependence, not because of empirical verification.

I think that this makes the claims of “science” in economics quite dubious, and in macroeconomics downright fraudulent. Even if you think that there is a group of economists who is unbiased and objective, they are not entitled to don white lab coats.

Working More = Markets Working

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Tim Harford writes,

A few years ago, the economists Mark Aguiar and Erik Hurst published a survey of how American work and leisure had evolved between 1965 and 2005. Both men and women had more leisure time — although nothing like as much as Keynes had expected. But some people defied this trend. The best educated and the highest earners, both men and women, had less free time than ever. Starting in the mid 1980s, this elite began to drop everything and work ­furiously.

Pointer from Mark Thoma.

What Harford does not mention is what I think is the most important trend, which is the drop in “home production.” We are making much better use of our non-work time, because we enjoy genuine leisure rather than doing unpaid tasks that we do not like.

Several decades ago, when an economist colleague bragged about building a deck on his house, I pronounced the aphorism “Do-it-yourself is a market failure.” He should have been able to earn more income by working more hours as an economist, and then pay someone else to build the deck. But he worked in a fixed-salary position for an employer that did not allow outside consulting.

The main trend is that people are doing less unpleasant work. As Harford notes, some people now enjoy their jobs. People are doing less unpaid housework (as I write this, a paid worker is mowing my lawn). Many people whose unpleasant jobs have been “lost” are now out of the labor force.

Teach Yourself

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Tyler Cowen said,

But the second skill, and this is a tough one, is to be very good at teaching yourself new things. Right now, our schools are not so good at teaching this skill. The changes we’ve seen so far are just the beginning; 20-30 years from now, we’ll all be doing different things. So people who are very good at teaching themselves, regardless of what their formal background is, will be the big winners. People who do start-ups already face this. They’ve learned some things in school, but most of what they do they’ve had to learn along the way; and that, I think, is the future of education. I’m not convinced that our schools will or can keep pace with that; people will do it on their own.

Several months ago, I had this odd desire to recover some of the gymnastic skills of my youth. I soon developed rib-cage muscle problems, which I never had way back when. I ended up reaching out on Facebook for advice and going to YouTube for instructions on exercises that would help. Note that I could have taken a Yoga class, but that is not the direction I went. That may tell you something about the future of learning.

Possibly related: Gary Vaynerchuk on entrepreneurship. Right off the bat, he says he does not think that it can be taught. He says that the most important thing is to know yourself. It reminds me of what ‘Adam Smith’ (George Goodman) wrote in The Money Game about the stock market:

If you don’t know who you are, this can be an expensive place to find out

Vaynerchuk reminds me of my main former business partner. Lots of smarts (with zero educational credentials), lots of passion, lots of testosterone. Our partnership clicked because we aligned in terms of intuition and competitive drive, but it was a good thing that we were separated by thousands of miles. If you watch the video, let me know what you think, and see if you can identify/articulate what I find off-putting.

Grumpy Regarding the Regulatory State

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John Cochrane writes,

The agencies demand political support for themselves first of all. They are like barons in monarchies, and the King’s problems are secondary. But they can now demand broader support for their political agendas. And the larger partisan political system is discovering how the newly enhanced power of the regulatory state is ideal for enforcing its own political support.

Read the whole thing.

Perhaps the most persistent news story of 2015 has been the way that various policemen have responded with shockingly aggressive use of force when they encountered what they viewed as lack of cooperation, primarily from African-American suspects. Think of that as a metaphor for how regulatory agencies respond when they see lack of cooperation. At least, that is how I read Cochrane.