Self-publishing and e-books

Hugh Howey writes,

Publishers can foster that change by further lowering the prices of their e-books. The record margins they’re currently earning are certainly seductive, but taking advantage of authors is not a sustainable business model. Hollywood studios had to capitulate to their writers when a new digital stream emerged. Publishers will likewise need to pay authors a fair share of the proceeds for e-book sales. 50% of net for every author is a good start.

There is much more, pointer from Tyler Cowen.

My best experience publishing was self-publishing The Three Languages of Politics.

My worst experience publishing was with Unchecked and Unbalanced. The publisher insists on pricing it not to sell on Kindle. I do not understand this. With zero marginal cost of distributing it as an e-book, I would think that the goal would be to maximize revenue. I don’t want 50 percent of the e-book revenue. I just want there to be e-book revenue. Publishers that are so stupid do not deserve stay in business.

The Era of Mood Affiliation

Menzie Chinn, who may or may not endorse the content, offers a guest post by Alex Nikolsko-Rzhevskyy, David Papell and Ruxandra Prodan. They write,

How does this relate to the proposed legislation? Our evidence that, regardless of the policy rule or the loss function, economic performance in rules-based eras is always better than economic performance in discretionary eras supports the concept of a Directive Policy Rule chosen by the Fed. But our results go further. The original Taylor rule provides the strongest delineation between rules-based and discretionary eras, making it, at least according to our metric and class of policy rules, the best choice for the Reference Policy Rule.

In the current political climate, the proposed legislation will inevitably be interpreted in partisan terms because it was introduced in the House Financial Services Committee by two Republican Congressman. Not surprisingly, the first reporting on the legislation by Reuters was entirely political. This is both unfortunate and misleading. We divided our rules-based and discretionary eras with the original Taylor rule between Republican and Democratic Presidents. If we delete the Volcker disinflationary period, out of the 94 quarters with Republican Presidents, 54 were rules-based and 40 were discretionary while, among the 81 quarters with Democratic Presidents, 46 were rules-based and 35 were discretionary. Remarkably, monetary policy over the past 50 years has been rules-based 57 percent of the time and discretionary 43 percent of the time under both Democratic and Republican Presidents. Choosing the original Taylor rule as the Reference Policy Rule is neither a Democratic nor a Republican proposal. It is simply good policy.

I would take the empirical work with a grain of salt. Imagine that monetary policy has no effect whatsoever. Then the Fed may be more likely to appear to be following a Taylor rule when the economy performs well than when it performs poorly.

(Tyler Cowen comments tersely on the post, “not my view.” See Nick Rowe as well.)

But the larger point is that the authors correctly guess that the reaction to the legislation will be based on mood affiliation rather than substance. See my earlier post.

The other recent example suggesting that we are in an era of mood affiliation is the Ex-Im bank.

Data to Ponder

It comes from William Emmons, but I cannot find the presentation, which is referenced here. I got as far as I did by following a pointer from Tyler Cowen.

Emmons shows median real income for households headed by college graduates roughly constant from 1991 to 2012, with median real income over that same period falling over 15 percent for households headed by those without college degrees.

Some remarks:

1. I would guess that the share of households headed by someone with a college degree has gone up, so that perhaps overall median household income has gone up. And mean incomes have probably gone up even more, because the mean includes high-salary individuals, successful investors, and entrepreneurs.

2. This looks like workers without college degrees becoming ZMP.

3. Other factors of production, namely capital and foreign workers, are putting downward pressure on American wages.

Ralph Nader’s Worldview

From an interview with Tyler Cowen.

If you look at the history of nations, major redirections for justice were brought about by never more than 1 percent of the active citizenry. Whether it was civil rights, the environment, or consumer protection, they had one asset: They represented what Abraham Lincoln called the “public sentiment.” Nowadays people give up on themselves and rationalize their own powerlessness, but it takes very few people in congressional districts and around the country to make major, long-overdue changes in American society that are supported by large numbers of people.

In other words, the Ralph Naders of the world are the heroes. People with great moral vision who use the forces of activism and government to overcome the evils of the private sector.

Unfortunately, what is required to become a Ralph Nader is an unshakable belief in your own righteousness and in the wrongheadedness of those with whom you disagree. Tyler tries to get Nader to admit that he has gotten something wrong, and all Nader can come with is

I underestimated the power of corporations to crumble the countervailing force we call government.

To me, Nader’s absolute certainty about his own righteousness makes the whole idea of an alliance involving him untenable. If you are that certain of yourself, then you cannot accept other people on equal terms. Working with him cannot involve give-and-take. It has to be obedience.

Larry Summers on SecStag

He writes,

With very low real interest rates and with low inflation, this also means very low nominal interest rates, so one would expect increasing risk-seeking by investors. As such, one would expect greater reliance on Ponzi
finance and increased financial instability.

Pointer from Tyler Cowen.

Larry thinks that if the government spends more money, it will work on improving JFK airport. If government does not spend more, then the private sector will take crazy risks.

I mean, if you think that government spends money wisely and the private sector does not, you do not need a whole theory of secular stagnation. To me, it looks like an opinion masquerading as a theory.

Maybe I am being too grumpy. The actual grumpy economist™, John Cochrane, has this to say.

The natural rate is per Laubach and Williams, about -0.5%. But we still have 2% inflation, so the actual real interest rate is -1.5%, well above -0.5%. With 2% inflation, we need something like a 4-5% negative “natural rate” to cause a serious zero bound problem. While Summers’ discussion points to low interest rates, it is awfully hard to get any sensible economic model that has a sharply negative long run real rate.

And he adds this:

From my point of view, the focus on and evident emptiness of the “demand” solution — its reliance on magic — just emphasizes where the real hard problems are.

Boomerang Kids

Adam Davidson writes,

Nearly 45 percent of 25-year-olds, for instance, have outstanding loans, with an average debt above $20,000…And more than half of recent college graduates are unemployed or underemployed, meaning they make substandard wages in jobs that don’t require a college degree.

…In 1968, for instance, a vast majority of 20-somethings were living independent lives; more than half were married. But over the past 30 years, the onset of sustainable economic independence has been steadily receding. By 2007, before the recession even began, fewer than one in four young adults were married, and 34 percent relied on their parents for rent.

Pointer from Tyler Cowen.

Some comments:

1. Segments of our society are falling apart. The left’s treatments are exacerbating the problem. That is why I think that changing our system of means-tested benefits ought to be a high priority.

2. I chide my daughters for not working for a profit. But they are all out of the house. I am not a total failure.

3. Government-subsidized college loans contribute more to the problem than to the solution.

Good Sentences, Bad Sentences

1. From Edward Conard:

The key to accelerating the recovery is not to generate unsustainable consumption, as Mian and Sufi propose. Rather, we must find sustainable uses for risk-averse savings

Mian and Sufi make a big deal over the fact that consumer spending fell in places where housing prices fell. Conard suggests that this is because consumers in those areas were spending at an unsustainable rate, based on capital gains in housing that disappeared.

2. From Alex Ellefson:

Laplante said he expects all 50 states to require software engineering licenses within the next decade, and possibly much sooner.

Not surprisingly, most software engineers endorse this. [UPDATE: from the article "The licensing effort was supported by nearly two-thirds of software engineers surveyed in a 2008 poll." Commenters on this blog dispute that most software engineers endorse licensing. They may be correct.] But it is really, really, not a good idea. Bad software may be created by coders. But its cause is bad management. The typical problems are needlessly complex requirements, poor communication in the project team between business and technical people, and inadequate testing.

I would favor licensing for journalists if I thought that it would keep incompetent stories like this one from appearing. But I don’t think that would work at all.

The pointers to both of these are from Tyler Cowen.

Rognlie > Piketty

Matt Rognlie writes,

[If house values continue to rise], Piketty (2014) will be right about the rise of capital in the twenty-first century. But the mechanism is quite distinct from the one proposed by Piketty (2014) (a better title would be Housing in the Twenty-First Century), and it has radically different policy implications. For instance, the literature studying markets with high housing costs finds that these costs are driven in large part by artificial
scarcity through land use regulation—see Glaeser, Gyourko and Saks (2005) and Quigley and Raphael (2005). A natural first step to combat the increasing role of housing wealth would be to reexamine these regulations and expand the housing supply.

Pointer from Tyler Cowen, who writes

Piketty’s mechanism of accumulation, as laid out in his book, is simply the wrong mechanism for understanding growing inequality, both theoretically and empirically.

That would appear to be the correct post-mortem on Piketty.

Central Banking’s New Normal

Tyler Cowen writes,

Were not these exit strategies supposed to be easy and painless? Maybe they are, except having no exit strategy is all the more easy and painless.

The title of his post is Will the major central banks evolve into mega-hedge funds? But perhaps the title should be, will the major central banks ever give up their mega-hedge fund activities?

In the wake of the financial crisis, the Fed has decided that credit allocation is too delicate and important to be left alone. The financial crisis did to the Fed what the 9-11 attacks did to national security agencies. I think that the chances that central banks will decide that they no longer need to behave like hedge funds are about as high as the chances that our national security apparatus will decide that they no longer need to treat terrorism as a major threat.

Larry Summers on Mian and Sufi

He writes,

They argue that, rather than failing banks, the key culprits in the financial crisis were overly indebted households. Resurrecting arguments that go back at least to Irving Fisher and that were emphasised by Richard Koo in considering Japan’s stagnation, Mian and Sufi highlight how harsh leverage and debt can be – for example, when the price of a house purchased with a 10 per cent downpayment goes down by 10 per cent, all of the owner’s equity is lost. They demonstrate powerfully that spending fell much more in parts of the country where house prices fell fastest and where the most mortgage debt was attached to homes. So their story of the crisis blames excessive mortgage lending, which first inflated bubbles in the housing market and then left households with unmanageable debt burdens. These burdens in turn led to spending reductions and created an adverse economic and financial spiral that ultimately led financial institutions to the brink.

Pointer from Tyler Cowen.

Summers points out that Mian and Sufi’s suggestion that we should have bailed out homeowners is probably not correct. I feel even more strongly than Summers does about this.

Suppose that we accept the balance-sheet recession story. Some comments and questions.

1. Vernon Smith is also a proponent.

2. What was the difference between the damage to consumer wealth caused by the dotcom crash of 2000 and by the housing crash of 2007-2008? Was it solely the fact that the latter had been financed more by borrowing?

3. Suppose that there had been no debt-fueled consumer boom in 2005-2006. What would there have been instead? A sluggish economy? A more sustainable boom?

4. Suppose that we take a PSST perspective. Then the period from the late 1990s to the present is one long, painful, still-unfinished adjustment to the Internet and factor-price equalization. We happened to have a sharp boom-bust cycle in home construction in the middle of it, but even during the boom we did not have four consecutive months of gains in employment over 200,000. Then, in 2008 we had a panic about large financial institutions, leading to a big increase in government intervention, which mostly consisted of transfers of resources to less-productive businesses, such as GM, Citigroup, and Solyndra.