there’s a pretty good chance your employer is paying you more in health insurance, and less in other forms of compensation (like, say, wages), than he or she would absent this inducement.
Read the whole thing. The economic analysis is not remarkable. But it is surprising to have it appear in the WaPo.
Rodrik supports the mathematical nature of economics as bringing clarity of meaning, and argues that the subject is far more applied and empirical than its detractors realise. But he criticises large-scale macro models and time series regressions. “I cannot think of an important economic insight that has come out of such models,” he writes. He also flags up the lack of testability of many economic models: they purport to be deductions from theoretical principles, but as they are ‘deduced’ to explain a particular phenomenon (credit rationing, say), then that phenomenon cannot be used to test the model. “Very few of the models that economists work with have ever been rejected so decisively that the profession discarded them as clearly false.”
Pointer from Mark Thoma.
My line is that economists deal in non-falsifiable interpretive frameworks. Read Coyle’s entire post. She makes Rodrik sound like someone I would agree with, although not everything I have read of him would indicate that.
The conversation between Tyler Cowen and Dani Rodrik keeps circling back to methodological issues. For example, Rodrik is wary of overrating randomized control trials. Rodrik suggests that graduate students should spend more time in the real world.
I keep thinking of the quote of Minsky writing that economists are well trained but not well educated. You are trained to solve equations. Nowadays you are trained to do the sort of narrow empirical studies that Rodrik thinks are overrated. But you are not educated in history or financial institutions or secular changes in the economy.
Also, Noah Smith has more to say.
philosophical empiricism is far more frightening for economists than for natural scientists. Living in a world of theoryderp is easy and comforting. Moving from that world into a Popperian void of uncertainty and frustration is a daunting prospect. But that is exactly what the credibility revolution demands.
Read the whole post. As I read it, he thinks that economists will have to reconcile themselves to less theory and more empirical work. I do not really agree:
1. I think that economists rely a lot on what I call interpretive frameworks. These do not have standing in philosophical empiricism, because they are not falsifiable.
2. Philosophical empiricism does not provide a guide to evaluating interpretive frameworks. Unfortunately, economists have not thought about this question. Frameworks become popular because they are tractable or interesting, and they stay popular without ever being evaluated for usefulness.
3. I think that an interpretive framework is strong if it offers explanations in many contexts, if it does not encounter too many anomalies (phenomena that seem to run counter to the framework), and if it is reinforced by other beliefs.
4. Supply and demand is an example of an interpretive framework that is very strong. That is, it seems to explain a lot, one rarely encounters anomalies, and it is consistent with other beliefs that we tend to hold.
5. Keynesian macro is an example of an interpretive framework that is not very strong. Many anomalies have cropped up over the decades: the ability of the U.S. economy to rebound after World War II in spite of the staggering drop in government spending; the breakdown of the Phillips Curve in the 1970s; the failure of many Keynesian stimulus policies in many countries, including the U.S. And Keynesian macro is notoriously inconsistent with many other beliefs that economists tend to hold.
Unfortunately, the Fed doesn’t get to decide the path of interest rates. It looks like they do, but that’s a cognitive illusion. The bond market determines the path of interest rates, reflecting factors such as global credit markets, as well as NGDP growth and the level of NGDP in the US.
I am fond of Winston Churchill’s remark about someone who “stumbles across the truth, but then picks himself up as if nothing happened.”
That is what I feel took place here. I think that the implication of the quoted sentences is that it is the bond market, not the Fed, that is in control. As I write in the Book of Arnold, the Fed is just another bank. It has no more ability to “target” macroeconomic variables than does Citibank. Of course, Citibank is free to set a ridiculous interest rate for its on loans and deposits, and so is the Fed. And if the Fed set a ridiculous rate on reserves (right now negative 1 percent would be ridiculous, as would positive 5 percent) lots of crazy things would happen. With a negative rate on reserves, cash would dominate reserves as an asset. With a rate of 5 percent, reserves would dominate pretty much any loan as an asset.
But leave aside such hypotheticals. The Fed is not the macroeconomic driver it is made out to be.
I suspect that many Republican politicians sincerely see their own party as composed of sober businessmen, plus crazy people wearing tricorne hats, plus crazy people waving fetus selfies, plus crazy people jabbering about Mexicans. The behavior of establishment Republican politicians can be seen as trying to placate/gull the various crazies so that the real work of the business lobbies can finally get done.
Amusing sentences (“fetus selfies”). In thinking about this, I am inclined to differentiate between two aspects of the Republican base. On the one hand, there is the Tea Party. On the other hand, there is the Trump/Fiorina Party.
At one point, I thought that the Tea Party’s issues were the bailouts, government spending in general, and Obamacare. On those issues, I am with the Tea Party and I share their disappointment with the Republican establishment, as represented by John Boehner, Mitch McConnell, and John Roberts.
The Trump/Fiorina party looks different. Trump wants to appeal to xenophobia, and Fiorina wants to mobilize the right-to-lifers. If the Republican establishment would prefer to be softer on immigration and less obsessed with the abortion issue, then I am with the establishment.
Of course, Democrats and the media do not see this distinction between the Tea Party and the Trump/Fiorina Party. They use Tea Party as an all-purpose boo-word. So they treat Trump and Fiorina are synonymous with Tea Party.
But to me the difference matters. And I am struck by the disappearance of what I thought of as the Tea Party as a factor in current politics. I hope that in the next several months the Tea Party comes back and the Trump/Fiorina Party recedes.
In an essay that I saw after writing this, Jerry Taylor makes the case that the Republican race, and in particular Rand Paul’s poor showing, is an indication that libertarianism is weak among the masses. And he also throws some cold water on my own hopes:
According to a survey conducted by the Public Religion Research Institute, more than half the Tea Party is made up of the religious right while only 26 percent—the smallest ideological bloc within the group—can be loosely described as Libertarian. And Tea Partiers have always manifested a large degree of nativist populism.
Have a nice day.
Broadly speaking, our results point to a quantitatively large and significant role for credit scores in the formation and dissolution of committed relationships. Three sets of empirical results support this conclusion: First, credit scores are positively correlated with the likelihood of forming a committed relationship and its subsequent stability. Second, partners positively sort into committed relationships along the credit score dimension even after controlling for other similarities between the partners. Third, a positive correlation notwithstanding, within-couple differences in credit scores are apparent at the start of relationships. Notably, the initial match quality in credit scores is highly predictive of subsequent separations even when controlling for other factors, such as couples’ use of credit and the occurrence of financial distress.
Jane Dokko, Geng Li, and Jessica Hayes write,
These results lead us to hypothesize that credit scores, in addition to measuring an individual’s creditworthiness regarding the repayment of debt obligations, reveal information about an important relationship skill. We argue that one such skill could be an individual’s general trustworthiness and commitment to non-debt obligations. To make this argument, we turn to survey-based measures of trustworthiness to show that the average credit score of a geographic area (typically a county) is highly correlated with the same area’s average level of trustworthiness. We also find that when individuals have a long exposure to greater trustworthiness, as measured by surveys, they tend to have higher credit scores even years after they leave those areas. Similar to how credit scores predict the formation and dissolution of committed relationships, we find that survey-based measures of trustworthiness also have predictive power for these outcomes. Interestingly, such statistical relevance diminishes when the couples’ credit score levels are controlled for, underscoring the overlapping between credit scores and survey-based measures of trustworthiness.
Pointer from Tyler Cowen.
In mortgage underwriting, they used to talk about the three C’s: collateral (the house, particularly the borrower’s equity in it), capacity (the borrower’s income relative to mortgage payments and other debt obligations), and credit history.
In fact, I think that the third C should be called conscientiousness, one of the Big Five personality traits. The authors of the paper instead use the term trustworthiness. That this trait should matter for relationship stability, and that it is well measured by credit scores, should surprise no one.
I worry that pursuit of this line of inquiry, like research on the role of IQ, will not be good for the career of a young researcher.
From an article in Scientific American.
“If we are serious about tackling emissions and climate change, no climate-neutral source should be ignored,” argues Staffan Qvist, a physicist at Uppsala University, who led the effort to develop this nuclear plan. “The mantra ‘nuclear can’t be done quickly enough to tackle climate change’ is one of the most pervasive in the debate today and mostly just taken as true, while the data prove the exact opposite.”
The report claims that nuclear power could replace all fossil-fuel electricity generation within thirty years.
I personally would rather see how some newer designs work, both in terms of safety and cost, before advocating a lot of nuclear power plant construction.
By Steven Pearlstein. The profile says a lot of good things about Blanchard, most of which are true. But it also includes this:
But for Blanchard, who had spent the better part of his career helping to build the new consensus, the crisis had not only revealed the inadequacies of what had been done so far but raised questions about whether it was possible to come up with one all-purpose economic model.
…“We ignored the financial plumbing,” Blanchard said. “We thought we could model it with a few simple equations,” he explained, based on what turned out to be false assumptions about the ready availability of buyers and sellers and the easy substitution of one financial instrument for another.
I would say that Pearlstein’s article suffers a bit from an excessive reliance on MIT insider economists as sources. And as Larry Summers put it, “But insiders also understand one unbreakable rule: They don’t criticize other insiders.”
The insiders created the artificial consensus around representative-agent, rational-expectations models with no institutional or historical perspective on finance. And they have not really moved very far from that consensus. For better or worse, macroeconomics is where it is today because of MIT’s insider economists, exemplified by Blanchard.
Five top Democratic economists are criticizing Sen. Elizabeth Warren (D-Mass.) and the left-leaning Brookings Institution for forcing one of its nonresident economic fellows to resign.
Read the whole thing. I don’t see how Brookings can say it is defending its integrity by caving into bullying. As I said earlier, you can either defend the research or you cannot. If Brookings had focused on the issue of whether or not the study is valid, they would have been fine. Instead, they let Senator Warren discredit the researcher, regardless of whether the study is valid.
You may remember that I did not like it when Congress beat up on Jonathan Gruber, either.
This Brookings incident has made me angry with many people on many levels.
New genius-grant winner Heidi Williams and colleagues write,
Effectively, either across countries or across regions within the US, we see that the observed geographic variation in postneontal mortality is heavily driven by variation in health gradients across socioeconomic groups. Notably, when we look at neonatal mortality we do not draw the same conclusions, suggesting that the inequalities we observe emerge especially strongly during the postneonatal period
Pointer from Joshua Gans. Read the paper before commenting. You will note that she deals with reporting differences.
Two pieces from the Washington Post. First David A. Farenthold writes,
The biggest pieces of Sanders’s domestic agenda — making college, health care and child care more affordable — seek to capture these industries and convert them to run chiefly on federal money.
Sanders obviously understands that health care and education are the New Commanding Heights.
Second, Dana Milbank writes,
It’s a sign of some clout that Warren has Litan’s hide, and Weiss’s, and Summers’s. But if her party answered to the people rather than its donors, she’d have many more.
If you combine Sanders and Warren, what you get is socialism combined with demonization and intimidation of anyone who does not support left-wing views. This is the country that the Democratic left wants to live in?