Monthly Archives: September 2016

How High is Geographic Mobility?

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Ioana Marinescu and Roland Rathelot write,

The data is from CareerBuilder.com, arguably the largest job board in the U.S., and is broadly representative of the U.S. labor market. Using this data to document the geography of job search, we find that job seekers are more likely to apply to jobs closer to home: a job seeker is 35% less likely to apply to a vacancy that is 10 miles away than to a vacancy that is in the job seekers’ ZIP code of residence. Still, we find that, on average, a job seeker sends 11% of their applications to out-of-state vacancies.

They conclude that there is little lack of geographic mobility.

This may be correct, and I may be wrong that men nowadays are not eagerly moving to where jobs can be found, or into occupations (truck driving, construction) where jobs currently are available. But I would pick some nits about this particular paper.

1. My guess is that CareerBuilder.com is probably not a go-to web site for low-skilled, unemployed males. I amya be wrong, of course.

2. An average of 11 percent out-of-state applications could still mean that a large number of visitors to the web site apply to 0 out-of-state vacancies.

Influences on One’s Thinking

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Sam Bowman of the Adam Smith Institute says who influenced him, including

How Richard Dawkins Got Pwned and An Open Letter to Open-Minded Progressives — Mencius Moldbug (Both very long.) I am not a neo-reactionary, but sometimes I think Mencius Moldbug is the greatest living political thinker. His claim that progressivism is a non-theistic sect of Protestantism, with all of Protestantism’s evangelism and intolerance of heresy, is in particular very persuasive to me. I also think ‘neocameralism’ is quite a cool model for a state and I’d like to see it tried out somewhere.

Pointer from Tyler Cowen.

Most of Bowman’s influences come from the right, but a few come from the left. I notice that all of those on the left have prestigious academic positions. Many on the right do not. I do not think that is purely coincidental. I believe that if you limit your reading to credentialed academics, you will miss many important thinkers on the right, but you won’t miss out on much from the left.

I always like to play this sort of game myself. In chronological order, some of my influences: Continue reading →

Another Idiosyncratic Comment

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Kevin Erdmannn comments,

It seems like you’re making the very mistake Smith is warning about. I don’t think historians looking at the newspapers of 2005 would be struck with the high level of trust we had in financial intermediaries. We imposed our distrust on them politically. The GSEs had four CEOs during the 2000s. All four were driven out. Ironically the second pair are accused of understating loss reserves in 2007. The first pair were paying fines in 2007 because they had been accused, among other things, of overstating loss reserves to manage earnings. It was impossible to be a GSE executive in the 2000s without being accused of fraud. The idea that the housing boom happened because of too much trust in financial intermediaries is laughably implausible. The only reason it seems plausible is because communal distrust is so ubiquitous that you will always find support for the idea that we trust them too much.

I agree that political meddling with Freddie and Fannie was harmful, and that they were better run before their CEOs were forced out in scandals that were either minor or perhaps not scandals at all. However, once that happened, confidence in Freddie and Fannie to invest in quality mortgages was unwarranted. More important, the confidence in the private mortgage securities market, based on AAA-ratings for mortgage tranches, was quite unwarranted. That form of financial intermediation got out of control.

PSST and 1946

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Commenter Handle asks,

As a first guess, would a PSST theory also predict significant disruption and delay in establishing a healthy ‘new normal’ from such a substantial and rapid transformation in the overall economy as accompanied the huge changes from the post-war demobilization? Would we expect the same thing to happen today?

I think that the rapid adaptation of the economy to peacetime in 1946 and 1947 is surprising from the perspective of patterns of sustainable specialization and trade. I have a couple ideas, both speculative.

1. Workers were much more mobile after the war. Having been overseas, a move to another city did not seem daunting. Also, men had met men from other parts of the country. A guy could say, “My buddy Joe, who lives in California, says that there are jobs near where he lives, and he can help me get settled there.”

2. Economic activity was much less geographically concentrated than it is today. My guess is that the percentage of counties where net business formation was positive was much higher than it is now.

Andrew Gelman on the Replication Crisis

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He writes,

2011: Joseph Simmons, Leif Nelson, and Uri Simonsohn publish a paper, “False-positive psychology,” in Psychological Science introducing the useful term “researcher degrees of freedom.” Later they come up with the term p-hacking, and Eric Loken and I speak of the garden of forking paths to describe the processes by which researcher degrees of freedom are employed to attain statistical significance. The paper by Simmons et al. is also notable in its punning title, not just questioning the claims of the subfield of positive psychology but also mocking it.

Pointer from Alex Tabarrok.

I am pretty sure that at some point prior to 2011 when I criticizes macro-econometrics I said that the degrees of freedom belong to the researcher rather than to the data. That is a minor note.

More important, I think that John Ioannidis deserves a mention. Yes, Gelman is focused on research in the field of psychology and Ioannidis focused primarily on epidemiology, but his paper Why Most Published Research Findings are False strikes me as a milestone worth including in the timeline.

Gelman’s post is mostly about the tension between insiders and outsiders in the academic world. The insiders’ chief weapon is the peer-reviewed journal article. The outsiders’ chief weapon is the blog post. If, like me, your heart is with the outsiders, you will find Gelman’s post bracing.

I should note that in my high school statistics class last year, I had an autodidact student who, among other things, was very familiar with the term p-hacking and the related literature. This gives me hope that as the generations turn over in academia, things might improve. As Max Planck is said to have remarked, science advances one funeral at a time.

From the Right-Wing Conspiracy Wing Nuts

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For example, the FDA assures the public that it is committed to transparency, but the documents show that, privately, the agency denies many reporters access—including ones from major outlets such as Fox News—and even deceives them with half-truths to handicap them in their pursuit of a story. At the same time, the FDA cultivates a coterie of journalists whom it keeps in line with threats. And the agency has made it a practice to demand total control over whom reporters can and can’t talk to until after the news has broken, deaf to protests by journalistic associations and media ethicists and in violation of its own written policies.

This comes from that notorious conservative outlet, Scientific American.

Boston Discussion: Try Again?

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I tried a couple weeks ago, but I let the weather forecasters frighten me out of it. I will be back in Boston on October 5th and 6th. Either lunch time or dinner time would work. We will discuss my latest book, Specialization and Trade. If interested, email me at arnold at-sign arnoldkling.com and let me know which time works best for you. I will try to work something out.

What’s Wrong with Keynesian Economic Theory?

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That is the title of a new book, edited by Steven Kates. It is published by Edward Elgar ($$$). I am one of the contributing authors.

My essay argues that Keynesians use two very different approaches in marketing their ideas. First, they use a simplistic approach (“spending creates jobs and jobs create spending”) to talk to politicians and the general public. Second, because among trained economists it is indefensible to ignore prices and instead talk about quantities depending on quantities, Keynesians talk in academic circles in an entirely different fashion.

I say that that fatal flaw in both approaches is aggregation–treating the economy as a GDP factory. This makes it impossible for Keynesians (or for macroeconomists in general) to think about the issue of patterns of sustainable specialization and trade. The PSST story is that some patterns of trade become unsustainable as tastes and technology change, and addressing this requires a trial-and-error process to evolve new sustainable patterns.

In terms of policy, the Keynesian assumption that all work is done in the same GDP factory suggests that government can fix a recession without knowing any specifics about the characteristics of unemployed workers. In reality, worker skills are heterogeneous, and there is no guarantee that a fiscal stimulus will be relevant to the workers who are having difficulty adjusting to new circumstances.

I reprise some of these points in Specialization and Trade, which is priced so that an entity other than a library might wish to purchase it.

To the Aspiring Econ Grad Student

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Paul Romer writes,

If I am right that in recent decades the equilibrium in post-real macro has discouraged good science (and remember, many economists do not agree with me, at least not yet) there is some risk that a rear-guard of post-real macroeconomists will continue to defend their notion of methodological purity. At this point it is hard to know whether this group will fracture or dig in for a fight to death. If they dig in, I suspect that it will be in a few departments and that the variation between departments will be larger. Watch to see how this plays out and choose where you go with this in mind.

Pointer from Mark Thoma.

My own advice is to look for opportunities other than graduate school in economics.

One way to think of my latest book, Specialization and Trade, is as a denunciation of the path that academic economics took since 1940. It is a Quixotic attempt to pull off what Paul Samuelson did in the 1940s, which is completely re-orient economics from undergraduate education on up. That is not going to happen. I think that academic economics (especially macro, but not just macro) is simply too far gone.

If you have a strong interest in studying economics and in joining in the intellectual conversation, you can do that on your own, without going to graduate school. This was less true forty years ago, when I was starting grad school, because we did not the Internet, with its blogs, online working papers, podcasts, and so on.

On your own, you can be selective about what you study and how intensively you delve into various areas. Studying on your own will be a lot less expensive than going to graduate school, particularly in terms of opportunity cost. Graduate programs will make you waste a lot of time studying things that are either uninteresting to you or uninformative, or both.

It could be that you really want the academic lifestyle, and suffering through an economics Ph.D program is the best way to get it. But be careful about assuming that the academic lifestyle is the only one for you. I think that bright college students tend to over-estimate the intellectual stimulation that they can get out of academia and they under-estimate the intellectual stimulation that they could get out of working in business.

The Trust Variable

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Noah Smith worries about the way economists invoke trust.

So although trust, in some form, is probably important in our economic lives, we don’t yet have the tools to measure it, we don’t know exactly how it’s important, and we definitely don’t know how to control or alter a society’s level of trust. Until we understand trust a lot better, it would be a mistake to rely on it too much when trying to explain the world around us.

Read the entire essay. I agree with his qualifications, but I would rephrase his conclusion. It sounds like he could be saying that if something is hard to measure and control, then look for other variables to explain and control the world. Instead, I would say that one should be humble about one’s ability to explain and control the world.

The first step in getting a better handle on trust is to define it well. As Smith indicates, the standard practice is to measure people’s answers to very broad survey questions (“How strongly do you agree with the statement that most people can be trusted?”) That is very unsatisfying.

When I worked at Freddie Mac, we were subjected to given some management training of the “teambuilding” sort, one of the goals of which was to improve trust within the organization. This lead us to think about trust, and one insight that some of us arrived at was that trust involves more than just a belief that someone else is well motivated. Often, trust breaks down because we lose confidence in other people’s competence. Even if you have very general views about other people’s motives, you are likely to assess other people’s competence relative to their specific occupations.

This factor of competence assessment is embedded in my views of the role of finance in economic fluctuations. In Specialization and Trade, I argue that financial intermediation can expand when people trust financial intermediaries. In particular, as we experience financial intermediaries meeting their obligations, we gain confidence in their competence (as well as in their motivation). This leads to more trust, more expansion of financial intermediation, and so on, until, in Minsky fashion, the intermediaries are engaged in dangerous activities, and we get a collapse, including a collapse of trust.

So trust is not “social capital” that you want to see increased indefinitely. At least in the case of financial intermediation, it is best for trust to be at some intermediate level. Not so low that relatively low-risk, high-return investment opportunities are missed. But not so high that you get an excess of relatively high-risk, low-return projects (e.g., sub-prime mortgage loans) that are funded.