Category Archives: Tyler Cowen is my Favorite Blogger

Tyler Cowen on Market Monetarism

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Tyler Cowen writes,

Surely there are other independent, ex ante signs for judging the tightness of monetary policy, rather than waiting for ngdp figures to come in, which again is citing a transform of the real gdp growth rate as a way of explaining real gdp.

He also links to Mike Munger, which led me to this post.

Read both in their entirety. I share their concerns with circularity in market monetarism.

Perhaps the market monetarists would answer that we will have an ex ante sign of the stance of monetary policy when we have an NGDP futures market. But in order to get a non-circular definition of tight money from market monetarists, must we wait for an NGDP futures market? Meanwhile, perhaps a worthwhile exercise for market monetarists would be to spell out the best way of inferring expected future NGDP from existing market indicators.

UPDATE: After I wrote this, but before I posted it, Scott Sumner wrote,

My focus when estimating the stance of monetary policy has generally been NGDP forecasts, not actual NGDP. And NGDP forecasts are available in real time, and hence not subject to the “waiting for ngdp figures to come in” critique above.

But that paragraph turns out to be disingenuous. He proceeds to disparage economists’ forecasts as not being market forecasts. He suggests that the spread between nominal bonds and inflation-indexed bonds is a better indicator of expected inflation than what you will find in a consensus economic forecast.

Overall, Sumner does show that he clearly understands that Tyler and other critics are asking for an actionable, forward-looking statement of the market-monetarist view of current conditions. And he comes close to providing it.

the current ultra-low 5-year spread [between interest rates on nominal bonds and rates on inflation-indexed bonds] suggests money is too tight for the Fed’s 2% inflation target. That doesn’t mean we’ll have a recession, but if the Fed wants to hit their 2% inflation target they need to ease policy. If they don’t, and if they fall short of their inflation target, then MMs will have been right.

Hillary Clinton’s Nevada Triumph

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The population of Nevada is about 2.8 million. According to the WaPo, Mrs. Clinton scored a resounding victory. She received 6,238 votes. 500 more than the other guy.

[UPDATE] Thanks to a commenter for pointing out my mistake:

Those are county delegate vote totals, not popular vote totals. Because the dem caucus process is dumb we don’t know how the popular vote broke down, but turnout has been estimated at 80k.

So maybe she got 50,000 votes? [/UPDATE]

Also, here is Tyler Cowen on what those who are surprised by the success of Donald Trump might have gotten wrong. Again, I give credit to Martin Gurri for getting it right. The public is revolting more, and more revolting, than we thought.

David Brooks Sends a Valentine

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He sent it on Tuesday, to President Obama.

Obama radiates an ethos of integrity, humanity, good manners and elegance that I’m beginning to miss, and that I suspect we will all miss a bit, regardless of who replaces him.

Tyler Cowen said that he agrees with the column.

I find myself feeling less charitable.

Brooks claims that the Obama Administration was scandal-free. I think it was more of a case that the mainstream press had his back. Could George Bush have survived the IRS scandal? Could Ronald Reagan have gotten away with choosing not to enforce immigration laws?

Brooks claims that President Obama “grasps the reality of the situation” in the Middle East. Certainly there are plenty of delusions that President Obama does not hold. I think he is right to be skeptical about how well military intervention would work out. But he appears to be stuck in a very sophomoric delusion, which is that virtue-signaling constitutes an effective foreign policy.

Brooks credits President Obama with listening to other points of view and having good manners. I don’t think he shows any real understanding of or good manners toward those who disagree with him about the relative merits of markets and government or about the relative merits of civilization-barbarism vs. oppressor-oppressed in describing the conflict involving radical Islam.

We certainly can do worse than President Obama. No one should be surprised if the next President turns out to make a lot of mistakes and to have major intellectual and moral defects. But any comparison with President Obama should be based on the reality, not Brooks’ air-brushed portrait.

Profit Mindfully

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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.

Growth, like the future, is not evenly distributed

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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 →

One Language of Politics?

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A piece in the UK Spectator says,

A senior editor of Nature, one of the leading academic journals, refused to consider it for review because she regards scientific research into the personalities of the long-term unemployed as ‘unethical’, and a sociology professor whom the publishers had asked to peer-review the book refused to do so on the grounds that any book linking benefit dependency to personality must be nonsense because personality is a ‘capitalist construct’.

Pointer from Tyler Cowen. The controversial book argues that welfare claimants have personalities that make them difficult to employ. It’s fine if you prefer the oppressor-oppressed narrative to the civilization-barbarism narrative. But instead of shutting the other side down, you should be standing up for their rights to make their case.

Socialism’s Poster Child?

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David Deming writes,

You don’t have to be a student of ancient history to know socialism doesn’t work. The collapse of the Soviet Union in 1989 was an unequivocal demonstration of the moral and economic superiority of capitalism. The misery caused by socialism is unfolding today in Venezuela. Since Venezuela embraced socialism in 1999, poverty, crime and corruption have all increased. Grocery shelves are empty and the annual inflation rate is estimated to be as high as 200 percent.

For the left, the poster children for socialism would not be the Soviet Union or Venezuela. Instead, think of Sweden or Denmark. But one can argue that those are welfare states, not socialist states in the sense of government ownership of the means of production. But consider Singapore:

A majority of the top dividend-paying stocks on the Straits Times Index are government-linked

That is according to Andy Mukherjee. Pointer from Tyler Cowen.

I would suggest focusing on the relationship between knowledge and power. In small states, like Singapore, Sweden, and Denmark, there is relatively little discrepancy between knowledge and power. It is possible for government officials to know more of what they need to know to carry out policy effectively.

Large states are harder for a central government to manage. Decentralized institutions, including markets, do a better job of aligning knowledge with decision-making power.

See my essay on the recipe for good government.

Tyler Cowen Juxtaposes

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There is this.

whoever you think the four most likely Americans to be the next president of the United States—who are probably Ted Cruz, Donald Trump, Bernie Sanders, and Hillary Clinton—none of them are in favor of TPP.

That is a quote from Larry Summers.

Then there is this:

Adjustment in local labor markets is remarkably slow, with wages and labor-force participation rates remaining depressed and unemployment rates remaining elevated for at least a full decade after the China trade shock commences. Exposed workers experience greater job churning and reduced lifetime income. At the national level, employment has fallen in U.S. industries more exposed to import competition, as expected, but offsetting employment gains in other industries have yet to materialize.

That is from David H. Autor, David Dorn, and Gordon H. Hanson.

Politicians, unlike tenured academics, have to cater to what the authors call “exposed workers.”

But note that the last sentence in the quote from Autor, et al. Does it not sound like the PSST story for recessions?

Machine Learning and Holdback Samples

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Susan Athey writes,

One common feature of many ML methods is that they use cross-validation to select model complexity; that is, they repeatedly estimate a model on part of the data and then test it on another part, and they find the “complexity penalty term” that fits the data best in terms of mean-squared error of the prediction (the squared difference between the model prediction and the actual outcome).

Pointer from Tyler Cowen.

In the early 1980s, Ed Leamer caused quite a ruckus when he pointed out that nearly all econometricians at that time engaged in specification searches. The statistical validity of multiple regression is based on the assumption that you confront the data only once. Instead, economists would try dozens of specifications until they found one that satisfied their desires for high R-squared and support for their prior beliefs. Because the same data has been re-used over and over, there is a good chance that the process of specification searching leads to spurious relationships.

One possible check on the Leamer problem is to use a holdback sample. That is, you take some observations out of your sample while you do your specification searches on the rest of the data. Then when you are done searching and have your preferred specification, you try it out on the holdback sample. If it still works, then you are fine. If the preferred specification falls apart on the holdback sample, then it indicates that your specification searching produced a spurious relationship.

Machine learning sounds a bit like trying this process over and over again until you get a good fit with the holdback sample. If the holdback sample is a fixed set of data, then this would again lead you to find spurious relationships. Instead, if you randomly select a different holdback sample each time you try a new specification, then I think that the process might be more robust.

I don’t know how it is done in practice.

Update on Computers Playing Go

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From Bloomberg:

Jon Diamond, president of the British Go Association, said machines are five to 10 years ahead of where he expected them to be. “It’s really quite a large, sudden leap in strength,” he said. “This is a significantly better result than any other computer Go program has achieved up to now.”

Technology that improves exponentially will do that to you. Once somebody has a program that is sort of on the right track, you feed it more data and give it more processing power. Once the computer starts to get in the same range as the human, it very quickly races past and leaves the human in the dust.

As Tyler Cowen Alex Tabarrok puts it,

Win or lose, I will bet that Lee Sedol is the last human champion the world will ever know.