Monthly Archives: February 2016

The Contrarian Indicator

Posted on by

In August 2008, Olivier Blanchard came out with a working paper saying that “The state of macro is good.”

His upbeat view of the stock market was posted on February 1st. In less than two weeks since then, the S&P is down about 5 percent.

I can forgive him for having poor timing on the stock market. My own view is that the stock market is not rational, and in fact this very irrationality makes the market difficult to beat.

But I find his smugness about MIT macroeconomics much more difficult to swallow. He would now say that there were problems with the consensus of a decade ago, but he still champions the MIT mystique.

Profit Mindfully

Posted on by

Terry Hyland says,

Yes, there is some solid evidence about the effectiveness of mindfulness practices in schools and workplaces – as I note in my book Mindfulness and Learning (Springer, 2011) – but this is only positive when it is informed by moral principles underpinning practice concerned with relieving suffering and enhancing mind/body well-being. Applications in the health and social care sector are ideally and essentially remedial, thus directly connecting them with foundational mindfulness principles concerned with relieving suffering. In education and work on the other hand, there has been a tendency for this core transformational function to be co-opted in order to achieve specific operational objectives, and such pragmatic purposes have obscured the links with the foundational moral principles. In education, such practical aims have included enhanced self-esteem/control and improved focus/attention span and, in the workplace, reduction of employee stress, lower rates of absenteeism and enhanced communication skills. All this seems quite some way from the ethical values which Kabat-Zinn and mainstream mindfulness practitioners would ideally wish to advocate.

Pointer from Tyler Cowen. Read the whole Terry Hyland interview. Or maybe you should just sing along with REM.

You’re sharpening stones, walking on coals, to improve your business acumen

A cynic might see Hyland’s goal as trying to protecting mainstream mindfulness practitioners from low-price competition.

The Big Short on Outsider Personalities

Posted on by

This weekend I watched The Big Short. The movie makes a big deal, as does the book, about the odd personalities of the investors who saw the financial crisis coming more clearly than others. Some thoughts on that:

1. If the typical normal person (or normal investor or normal regulator) saw a financial crisis coming, then it would not occur.

2. At any one time, there are lots of outsiders forecasting extreme events. If you bet on outsiders all the time, most of the time you will lose.

3. The challenge for insiders is to filter out the noise from outsiders without filtering out the signal.

4. You filter out signal when you hold as sacred hypotheses beliefs that really should be questioned. As the movie points out, the hypothesis that AAA-rated securities are safe was sacred. The hypothesis that house prices never go down in more than a few locations at the same time was sacred. The hypothesis that new risk management techniques made old-fashioned mortgage underwriting standards obsolete was sacred.

5. People with outsider personalities are less likely to fall into the trap of holding hypotheses as sacred. If you don’t need to get along with the insiders, then you question them. You question them when they are right and you question them when they turn out to be wrong.

6. As you know, I think that MIT economics has produced a set of insiders who hold sacred hypotheses. Math equals rigor. AS-AD. Market failure always justifies government intervention. Etc. The Book of Arnold is an attempt to call them out on it.

Decentralized Data Collection

Posted on by

Virginia Postrel writes,

Premise reverses the usual do-gooder assumption about the Internet’s benefits for people in developing countries — that it supplies precious information from abroad. (People in Pakistan can take online courses from MIT!) Instead, it turns those ubiquitous phones into a way of bypassing distant bureaucrats to get systematic information, collected by people who understand the local territory, out of the shadows and into the world economy.

Read the whole thing, which describes an app that allows businesses and governments to undertake research about price trends and other economic phenomena in developing countries.

The Research Climate, So to Speak

Posted on by

Judith Curry writes,

Careerism leads a scientist not to want to have their research be challenged or audited, for fear of damage to their reputation that is shallowly based on such things as publication numbers, funding, memberships on prestigious boards, press releases and citation numbers (rather than an interest in learning and making meaningful contributions that advance science).

Policy advocates/activists do not want to see their science challenged (or the science of their political allies), for fear that the challenge will diminish their policy and political objectives. Challenges from someone on the ‘other side’ of the policy/political debate are regarded as especially objectionable, since their motives are ‘different’. As a result, we are seeing an epidemic of ‘activism that abuses science as a weapon.’

Read the whole post. I was not sure what made the best excerpt.

I see this issue in Martin Gurri terms, with insiders and outsiders in conflict. The insiders are the credentialed academics. The outsiders non-academics or academics from other fields. We can expect outsiders to enjoy greater access to information and more ability to publicize their analyses than was the case before the Internet. The insiders will react by attacking the outsiders’ motives and lack of credentials. If we side too much with the outsiders, we risk nihilism, in which good science is too easily dismissed. If we side too much with the insiders, we risk groupthink, in which bad ideas persist because contrary analysis is suppressed.

Economics and Agency

Posted on by

Alberto Mingardi asks,

Shall we pretend events like globalisation and the feeding of billions are the clear result of the actions of some brilliant men, and that’s it? Shall we produce a Marvel comics version of the free market, that instead of focusing on the invisible (indeed) interactions of many, praises just the courage and intelligence of few?

Read the whole thing. I believe that the issue of agency is indeed very important.

1. As individuals, we are inclined to view our successes as due to our own efforts and choices and our failures as outside of our control.

So, if you have some good things in life, you tend to overstate how much you earned them and understate the extent to which you were fortunate. When you look at others, you tend to see a more appropriate mix of earned success and luck. As a result, to most people, the economy looks unfair. We can see the element of luck in the success of those doing better than us. We don’t see the element of luck in our own success.

One wise piece of advice I got from a co-worker is that they way to be happy is to compare your salary and work effort to that of colleagues who work harder and earn less. Instead, most people do the opposite, and it makes them unhappy. It is a very difficult trick to see your own salary as being lucky in comparison with someone else’s.

2. We are more inclined to think of economic outcomes as determined by deliberate agency than by emergent phenomena.

Thus, we attribute the state of the economy to policy. In my view, we much over-rate the control that the Fed has over the stock market and the economy.

The politician who promises to “fix” the economy can take advantage of both of these inclinations. He can appeal to people’s bias toward seeing the system as unfair by saying that the system is broken. And he can take advantage of people’s bias to over-rate his ability to control economic outcomes by saying that he can fix the system. Of course, after he has been in office a while, unless he has gotten lucky, these inclinations will work against him and in favor of a challenger.

Compared with 100 Years Ago

Posted on by

Timothy Taylor pulls some nuggets from an article by Carol Leon Boyd in the Monthly Labor Review.

BLS reported about 23,000 industrial deaths in 1913 among a workforce of 38 million, equivalent to a rate of 61 deaths per 100,000 workers. In contrast, the most recent data on overall occupational fatalities show a rate of 3.3 deaths per 100,000 workers.

That’s the sort of thing that doesn’t show up in GDP growth rate statistics.

There is much more at the link.

Two Historical Tales of Productivity.

Posted on by

1. Dietrich Vollrath writes,

the weighted variance of log capital and log coal per worker is either 0.0188 (if you use Clark’s index of capital) or 0.0381 (if you use Clark’s data on looms equivalents). Either way, this is only 2.92% or 5.90%, respecitively, of the total variance in real wages. A tiny fraction of variation in real wages is driven by differences in capital per worker, and the rest must be explained by technology, human capital, or something else. Clark has disposed of technology as an explanation, so it could be human capital. Clark eliminates big human capital differnces (at least in terms of age structure or experience), so it has to be “something else”. That something else is either local effects or culture, depending on your choice of terms.

This refers to international comparisons of productivity in the cotton industry. Clark is Gregory.

2. Gerben Bakker, Nicholas Crafts, and Pieter Woltjer write,

Compared with Kendrick, we find that labour quality contributes more and TFP growth less. For this period as a whole, TFP growth accounted for about 60% of labour productivity growth rather than the 7/8th famously attributed to the residual by Solow (1957).1 Contrary to secular stagnation pessimism, TFP growth was very strong both in the 1920s and the 1930s, at 1.7% and 1.9% per year, respectively – well ahead of anything seen in the last 40 years. Regardless, even though the 1930s saw the fastest TFP growth in the private domestic economy before WWII, it was not the most progressive decade of the whole 20th century in terms of TFP growth. Both 1948-60 and 1960-73 were superior at 2.0% and 2.2% per year, respectively

Pointers from Mark Thoma for both.

Keep in mind that in (2), they are starting with output per worker in the aggregate economy, and certainly there are problems measuring the numerator. Then you adjust for capital per worker, and that raises another measurement challenge. Then, in order to calculate you take a percentage change, which amplifies measurement error. Then, to compare growth rates across time periods, you take the difference in percentage changes, which amplifies measurement error yet further. I’m not criticizing these specific results, but just raising a general caution.

A Very Sobering Sentence

Posted on by

from Jonathan Haidt.

in the academy now, if truth conflicts with social justice, truth gets thrown under the bus.

Earlier in the interview, he says,

For many years now, there have been six sacred groups. You know, the big three are African-Americans, women and LGBT. That’s where most of the action is. Then there are three other groups…Latinos, Native Americans, and people with disabilities. So those are the six that have been there for a while. But now we have a seventh–Muslims. Something like 70 or 75 percent of America is now in a protected group. This is a disaster for social science because social science is really hard to begin with. And now you have to try to explain social problems without saying anything that casts any blame on any member of a protected group. And not just moral blame, but causal blame. None of these groups can have done anything that led to their victimization or marginalization.

Read the whole thing.

Growth, like the future, is not evenly distributed

Posted on by

Larry Summers writes,

whereas my grandmother would have been at sea if returned to her girlhood home, I would miss relatively little if suddenly placed in the home I grew up in. It takes longer and is less comfortable to fly from Boston to Washington or London than it was 40 years ago. There are more highways now but much more traffic congestion as well. Life expectancy has continued to increase, though at about half the pace it did during my grandmother’s day. But the most important transformation—child death being an extraordinary event—had already happened by the time I was born.

Pointers from both Mark Thoma and Tyler Cowen.

If you compare 1900 to 1960, you can point to a few innovations that transformed America. The car, radio and television, and household appliances like refrigerators and vacuum cleaners.

Has there been comparable transformation since 1960? I would say that there has, but the improvements have been distributed differently and are not embedded as much in tangible goods. Continue reading →