Tyler Cowen praises my book

He writes,

Think of it as Fischer Black macro for 2016.

Knowing what he thinks of Fischer Black, that is praise. Fischer Black and I were far apart on macro in the late 1970s, when he was a finance professor and I was a grad student at MIT. But Tyler is correct that my heterodoxy is probably closest to Black’s, particularly his non-monetarism.

Reverse Mortgages

An NYT story says,

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).

Real Wages and Output Fluctuations

Tyler Cowen writes,

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.

Current Thoughts on Neo-reaction

As a characterization of neo-reaction (not as his own point of view), Tyler Cowen writes,

If you are analyzing political discourse, ask the simple question: is this person puking on the West, the history of the West, and those groups — productive white males — who did so much to make the West successful?

My thoughts.

1. Various sources credit me with popularizing the term “neo-reactionary.” However, the links go back to this post from 2010, which today strikes me as quite confused. I wrote,

Other writing in this vein ranges from the best-selling (Jonah Goldberg’s Liberal Fascism) to the obscure (Mencius Moldbug’s old blog posts) to somewhere in between (Arthur Brooks’ The Battle, which I still have not read.)

To which, the current me says “Hunh?” I do not know what I meant, and reading the rest of the post does not help.

2. Let us follow Tyler and say that a major role of political ideology is to attempt to adjust the relative status of various groups. The extreme ideological combatants are the post-modernists and the neo-reactionaries.

The post-modernists seek to elevate the status of women, minorities, and nationalities they view as oppressed. They want to knock down the status of American white males. Neo-reaction can be thought of as expressing the feeling that the status re-alignment has gone too far and needs to be rolled back. A middle ground might be that the status re-alignment to date is fine but that further denigration of white males would be going too far.

3. I would like to elevate the status of people who work in the for-profit sector and reduce the status of people who work in the non-profit sector. Instead, we seem to be intent on reversing the status-change that Deirdre McCloskey says helped produce the Great Enrichment.

4. Consider the principle of “welcoming and assimilating outsiders,” which I think of as central to American success. I believe that we are seeing dangerous extremism against that principle. The neo-reactionary does not want to welcome outsiders. The post-modernist does not want to assimilate them.

5. Of course, every adherent to an ideology seeks to elevate the status of those who share that ideology and to downgrade the status of those with different ideologies. That is why it matters that journalists and academics are overwhelmingly on the left. This means that the institutions of the mass media and higher education are inevitably and relentlessly going to seek to lower the status of conservatives.

The Construction-worker Bottleneck

Conor Sen writes,

From a labor slack standpoint, the pool of potential construction workers is probably well-represented by unemployed men under the age of 55. To get back to late ‘90s levels of male unemployment (from a level standpoint, not an unemployment % standpoint), we would need essentially every single male unemployed worker who finds a job in the coming years to go into construction.

Generic pointer from Tyler Cowen. Like Kevin Erdmann, Sen sees us having to build a lot of housing to make up for under-production from 2008-present.

I am not sure there is a housing shortage. A lot of people my age have too much house. That is why they do not mind having their kids move back in with them. It could be that what we need is not so much a surge in construction as a redistribution of housing.

Indeed, Mark J. Perry writes,

In 2015, the average size of new houses built in the US increased to an all-time high of 2,687 square feet (see dark blue line in top chart above), and the median size new house set a new record of 2,467 square feet (see light blue line in top chart). Over the last 42 years, the average new US house has increased in size by more than 1,000 square feet, from an average size of 1,660 square feet in 1973 (earliest year available from the Census Bureau) to 2,687 square feet last year. Likewise, the median-size house has increased in size by almost 1,000 square feet, from 1,525 square feet in 1973 to 2,467 last year. In percentage terms, both the average and median size of new US houses have increased by 62% since 1973.

Combined with a decline in household size, this means according to Perry that living space per person has nearly doubled.

Because we need more space to store our cookbooks, vinyl records, maps, encylopedias, radios, and photo albums.

Tyler Cowen on Labor-Leisure Trends

In his column he writes,

Yet it is a strange society that disproportionately bunches much work and stress for so many women in the middle of their lives, and rewards them only much later with leisure. It is a kind of feast or famine for work, leisure and earnings.

In terms of the four forces, I would say that as the size of the New Commanding Heights sectors (education and health care) increases relative to manufacturing, the proportion of women doing market work has gone up. With bifurcated family patterns, we see higher-status families where parents work until their children have completed their education. Then they retire.

Note that the cost of goods and services other than education and health care has tended to fall. Thus, the way to get the most leisure is to resist the cultural pressure to live in a high-status city, have your children attend a high-status college, and buy “good” health insurance (meaning a pre-paid health plan as opposed to real insurance). If you can do that while earning a decent wage when you work, you can afford a lot of leisure.

Un-taxed Owners of Corporate Shares

Steven M. Rosenthal writes,

In a report published today in the journal Tax Notes, my Tax Policy Center colleague Lydia Austin and I found the other three-quarters of shares now are held in tax-exempt accounts such as IRAs or defined benefit/contribution plans, or by foreigners, nonprofits or others.

Pointer from Tyler Cowen. Other things equal, this should lead corporations to pay higher dividends. What other implications are there?

Timothy Taylor has thoughts.

What the Deuce is Going On?

Tyler Cowen writes,

The contemporary world is not very well built for a large chunk of males. The nature of current service jobs, coddled class time and homework-intensive schooling, a feminized culture allergic to most forms of violence, post-feminist gender relations, and egalitarian semi-cosmopolitanism just don’t sit well with many…what shall I call them? Brutes?

His point seems to be that we are becoming a more feminized society, and some of what we observe is (futile) pushback against that. My thoughts:

1. When one speaks of feminized culture (or at least when I speak of it), it is not to suggest that all women have traits that differ from all men. Rather, think of tendencies that are higher in one gender or another.

2. I am less positive than Tyler about the traits of feminized culture. While the favorable characteristics are there, I also associate with feminized culture: consensus-driven to the point of repressing unpopular ideas; elevation of feelings relative to reason; too much tolerance for roles with authority without accountability and for roles with accountability without authority, rather than constructing a hierarchy that keeps authority and accountability aligned (“the buck stops here”).

My impressions are based on experiences working in organizations as well as observations about society at large. I used to say that I felt uncomfortable at business meetings that were male-dominated or female-dominated. I felt most comfortable with close to a 50-50 mix.

3. I am considering reading another Peter Turchin book, from ten years ago, called War and Peace and War. He apparently offers a grand theory of the integration and disintegration of empires, and I wonder how well 21st-century developments fit the “disintegration” model.

A Post to Waste My Time

Jonathan H. Adler writes,

When newspapers make mistakes or false accusations, they publish corrections. That’s not always the case with bloggers, however. And sometimes it seems the more prominent the blogger, the less likely a correction will be made.

A recent example comes from noted economist Paul Krugman. . .

I think that Adler is wrong to frame this in terms of newspapers vs. blogs. Krugman does not limit his remorseless slander to blogs.

Everything written by, for, or against Krugman over the past 15 years is a waste of time. That includes this post as well as Adler’s. It includes various attempts by Henderson, Cowen, and Sumner to engage with Krugman. They try to treat him as if he had some sense of decency. Instead, he is Joe McCarthy with a Nobel Prize.