It came out yesterday.
Macroeconomics, which is the branch of economics that purports to connect fiscal stimulus with employment, tries to ignore the evolution of PSST. Interestingly, macroeconomics straddles the too-concrete thinking of the public and the too-abstract thinking of the academic elite.
The essay is based on my new book, which rose to #1 on Amazon in the narrow category of macroeconomics.
I am disturbed by Mr. Trump’s personality, as many people are. However, I am also disturbed by Mrs. Clintons’ personality, for pretty much the same reason. In both cases, I see a closed circle of trust, as opposed to an open circle of trust.
Let me try to explain. Obviously, I am playing amateur psychiatrist here.
1. Someone with an open circle trust sees a world filled with potential partners. At some point, anybody out there could be able to offer some goods, services, information, or connections in a mutually beneficial exchange.
2. Someone with a closed circle of trust relies on loyal followers who have no important outside relationships. People outside the circle do not enjoy trust. Particularly if they have talent and ambition, they are at best threats and at worst enemies.
3. A President with a closed circle of trust poses a threat to the rule of law by choosing assistants who would follow their leader as opposed to following their consciences. In my lifetime, Richard Nixon comes to mind as the President who fit this pattern most closely. Next might be Lyndon Johnson, although he was aware that he had this trait, and the more aware you are of a trait the less likely it is to overwhelm you.
4. My instinct that Mr. Trump has a closed circle of trust comes in part from the way that he is treating the Republican establishment. He seems to me to be telling other Republicans that he wants their support and their money but not their input.
5. My instinct that Mrs. Clinton has a closed circle of trust comes from a variety of evidence, some of which I am likely to have forgotten. Consider the peculiar way that she and Ira Magaziner went about designing her health care reform. Consider her use of the phrase “vast right-wing conspiracy.” Finally, consider her email server. Any normal individual would have trusted the IT professionals at the State Department to provide email that met their needs. But for Mrs. Clinton, those professionals, with their loyalty to the institution of the State Department, were outside the circle of trust. It was inconceivable that they would be allowed to handle her email account.
On Sunday, the WaPo ran a banner headline story about people who fear/loathe one or both candidates. I went to the story on line, hit control-F “Johnson”, and got nothing.
The coalition of people who rightly fear/loathe Mr. Trump and/or Mrs. Clinton is really large. If Gary Johnson had access to that coalition through the media, I think he could win. But, so far, crickets.
UPDATE: Well, you schedule a post a couple days in advance, and events intervene. In this case, the Orlando terrorist massacre. One side says “Blame gun culture! Blame homophobia!” The other side says “Blame the failure to face up to Islamic radicalism!” Gary Johnson doesn’t take either side. Perfectly reasonable, but reasonable is not how you get attention.
Assuming Wolfers and DeLong and I aren’t just blowing smoke out of our rear ends, and DSGE models really don’t work, why do so many macroeconomists spend so much time on them?
Pointer from Mark Thoma. Smith refers to Brad DeLong’s post, in which he writes,
DSGE macro–has indeed proven a degenerating research program and a catastrophic failure: thirty years of work have produced no tools for useful forecasting or policy analysis.
As for Noah’s possible explanations for how the profession got into that cul de sac, and why it remains there, I vote for a combination. I endorse the following snippets of his post:
Maybe since macro data is very uninformative, no one actually knows what good research looks like, so they all settle on some random thing
In my new book, I say that economists in general, and macroeconomists in particular, deal in interpretive frameworks rather than in testable hypotheses.
it’s just fun for some people to do
I always suspected that Stan Fischer and Olivier Blanchard liked their preferred models because they found the math fun. They found it even more fun when they could see that other people had trouble following the math.
if the prevailing research paradigm is not really better than alternatives, then you probably want macroeconomists who are willing to “play the game”, as it were. So DSGE might be an expensive way of proving that you’re willing to spend a lot of time and effort doing silly stuff that the profession tells you to do.
Sad, but true.
I see this as vindication. During the thirty years that I abandoned interest in academic macroeconomics, I missed nothing. It was not me that was being obtuse. It was the profession.
This link goes to the Kindle version, which will set you back $4 (or is it free?), plus your time. Paperback version will be available soon.
As of this moment, the Amazon site calls me the “editor” of the book rather than the author. That will be corrected eventually.
The main point of the book is that you need to keep in mind the overwhelming complexity of specialization in a modern economy. Non-economists miss it when they use simple intuition. And academic economists tend to miss it when they build their “models,” particularly of the GDP factory.
Any reader of this blog will be able to follow the book. But what I really want is for everyone who is about to start graduate school in economics to read this book. I want to say to such students, “Don’t get too suckered in by what your professors are going to be showing you about how to do economics. Don’t let them lead you to forget about specialization and trade.”
Are there fields where “people hire people smarter than themselves” (smarter, better, faster, tougher, sexier, whatever) and conversely, fields where decision makers are afraid to do so?
Off hand, I would say that in tech fields the advice is to hire the smartest person you can, and if they are smarter than you, then so be it. I never regretted hiring the smartest people. In at least one case, the person climbed higher than me on the ladder, but that did not trouble me. It felt like a positive-sum game.
I would guess that in situations where it feels like a zero-sum game, things are quite different. My guess is that it is more likely to feel like a zero-sum game in a non-profit.
His next question.
Why, for example, are many history Ph.D.s driving cabs (now Uber) and not teaching high school?
I am not sure that having a Ph.D is predictive of having the skills or the inclination to teach high school. I teach at a private high school in a very positive environment where the students want to achieve, and it still can be unpleasant and unrewarding at times. Moreover, as a volunteer, I get to opt out of a lot of the garbage jobs that paid teachers are expected to do.
If I had to make a living, and if you gave me the choice between teaching at the median public high school and working for Uber, then I’d be an Uber driver.
First, let me express solidarity with gays. When people are targeted for murder as gays, it’s time for the rest of us to say We Are All Gay.
But that is not my point. My point can be expressed in terms of multiple choice: The common element between the attacks in Paris and the attacks in Orlando was:
a) Radical Islam
b) Hatred of gays
c) American gun culture
d) No common element. These were idiosyncratic attacks, carried out by different people, each with their own motivations.
Instructions for comments: I do not want to hear from people who, like me, would answer (a). Do not use this post to justify such a belief or to criticize other beliefs or to try to guess what other people are thinking. Instead, I want to hear from people who sincerely would make one of the other choices. I would like to understand your point of view. To put it another way, I would be interested in a comment from President Obama, not from Donald Trump.
[UPDATED INSTRUCTIONS: Note that the question does not ask “which of these were factors in the Orlando attack?” It asks “which of these is a *common element* between Paris and Orlando. Already, the first comments are in response to the question that I did not ask]
Just to be clear: I still plan to vote for Gary Johnson, based on his character and demeanor.
it may surprise you to learn that some community bankers are quietly offering the loans, too, bringing a kind of Main Street respectability to a product that has long lacked it.
Pointer from Tyler Cowen.
Here is how I think of a reverse mortgage.
Step 1. Sell your house to the bank.
Step 2. The bank rents your house back to you.
Step 3. The bank forgives the rent, but instead charges you interest that accumulates until you die or move out.
Step 4. When you die or move out, the bank adds up the accumulated unpaid rent and interest. If you want to pay it up, you can get your house back. Otherwise, if the debt is higher than the value of the house, then it makes more sense to let the bank keep the house.
In principle, whether this works out financially depends on how long you live in the house relative to expectations at the time you take out the reverse mortgage. You want to live so long that the value of living rent-free in step 3 is so high that at step 4 you or your heirs gladly hand the bank the house rather than pay all that rent and interest. But if you move out or die relatively soon, the bank will have priced the mortgage in such a way that if you or your heirs pay off the debt the bank will come out ahead–and it will come out ahead even more if you give up the house.
Thus, as in any sort of life insurance or annuity situation, you are making a bet against the financial institution. My guess is that this is unwise.
1. In general, the individual loses bets against financial institutions. I tell my daughters, “remember that insurance companies always price to make a profit.” My point is not that you should never buy insurance of any kind. But you should always at least consider self-insuring (rather than paying for extended warranties, for example) or alternative ways of insuring.
2. I think that old people are inclined to over-estimate how long they will live in their houses. They do not like to think about how they might lose the ability to climb steps, to tolerate bad weather, or to live independently.
3. I do not think that many old people need to live rent-free in the short run. In the short run, you can just take out a regular mortgage and use some of the proceeds from the mortgage to meet the payments. Ten years from now, after you have used up most of the proceeds on making the payments and financing consumption, you can think in terms of selling the house. By that time you will probably want to. See (2).
Here’s the catch: on the internet I’ve read dozens — no, hundreds of times — that real wages haven’t gone up more because the Fed chokes off real wage hikes every time the economy nears recovery. You will notice that this claim is simply flat out wrong if the mainstream view of real wage acyclicality is correct.
The issue of real wages and output fluctuations is an excellent illustration of the way that Keynesian macroeconomics operates.
1. At the crude level, Keynesians speak as if real wages go up as output goes up. This is classic, “spending creates jobs, jobs create spending” thinking, which is not good economics. However, you can catch Ph.D economists talking this way.
2. At the abstract level of models, a very standard macroeconomic theory is that output fluctuations are movements along a labor demand curve. That means that as real wages go up, output goes down. This is a core element in Scott Sumner’s macroeconomic analysis, for example.
3. Empirically, it is very hard to spot any strong correlation, positive or negative, between real wages and output.
So macroeconomists will let the public think (1), will build a model that says (2), and when pressed will admit (3). And nobody calls them out on it.
A UBI will do the good things I claim only if it replaces all other transfer payments and the bureaucracies that oversee them. If the guaranteed income is an add-on to the existing system, it will be as destructive as its critics fear.
Relative to what I have suggested in the past, Murray proposes a higher UBI. From a budget standpoint, he does this by replacing Social Security.
Well, I mentioned him a couple weeks ago. Now, John Cochrane says that Moretti and Chang-Tai Hsieh have a new working paper. They claim that the wage differentials between cities are productivity differentials. Instead, they might be cost-of-living differentials. Or, to be more precise, cost-of-living-among-affluent-people differentials.