Category: Equitablog

Must-Read I disagree with Noah Smith: reading Phil Price convinced me that Phil Price is an idiot, that for many, many people NIMBYism is not a “flawed but serious package of ideas” but rather “simple ignorance”—or, perhaps, rather, very hard work to remain ignorant, in a way that is supportive of the “selfishness of incumbent homeowners trying to feather their own nests… [and] white people trying to exclude poor minorities from their communities while still appearing liberal…”

What was Andrew Gelman thinking in giving him his microphone?

Noah Smith: The NIMBY Challenge: “NIMBY theorists like [Phil] Price… should do the following thought experiment… http://noahpinionblog.blogspot.com/2017/05/the-nimby-challenge.html

…Imagine destroying a bunch of luxury apartments in SF. Just find the most expensive apartment buildings you can and demolish them.  What would happen to rents in SF if you did this? Would rents fall? Would rich people decide that SF hates them, and head for Seattle or the East Bay or Austin? Maybe. But maybe they would stay in SF, and go bid high prices for apartments currently occupied by the beleaguered working class. The landlords of those apartments, smelling profit, would find a way around anti-eviction laws, kick out the working-class people, and rent to the recently displaced rich. Those newly-displaced working-class people, having nowhere to live in SF, would move out of the city themselves, incurring all the costs and disruptions and stress of doing so. 

If you think that demolishing luxury apartments would have this latter result, then you should also think that building more luxury apartments would do the opposite. Price should think long and hard about what would happen if SF started demolishing luxury apartments….

I think Price’s posts have the following lessons for YIMBYs:

1. Econ 101 supply-and-demand theory is helpful… but don’t rely on it exclusively… use a mix of data, simple theory, thought experiments, and references to more complex theories.
2. Always remind people that the price of an apartment… doesn’t come built into its walls and floors.
3. Remind NIMBYs to think about the effect of new housing on whole regions, states, and the country itself, instead of just on one city or one neighborhood. If NIMBYs say they only care about one city or neighborhood, ask them why.
4. Ask NIMBYs what they think would be the result of destroying rich people’s current residences.
5. Acknowledge that induced demand is a real thing, and think seriously about how new housing supply within a city changes the location decisions of people not currently living in that city.
6. NIMBYs care about the character of a city, so it’s good to be able to paint a positive, enticing picture of what a city would look and feel like with more development….

The YIMBY viewpoint has the weight of evidence and theory on its side. But the NIMBY challenge is not one of simple ignorance. Nor is it purely driven by the selfishness of incumbent homeowners trying to feather their own nests, or by white people trying to exclude poor minorities from their communities while still appearing liberal (two allegations I often hear). NIMBYism is a flawed but serious package of ideas, deserving of serious argument.

Should-Read: Larry Summers: 5 Suggestions for Avoiding Another Banking Collapse: “First, it is essential to take a dynamic view of capital…

…Second, a crucial challenge… is assuring prompt responses to deteriorating conditions that do not set off vicious cycles. Markets were sending clear signals of major problems in the financial sector well in advance of the events of the fall of 2008 but the regulatory community did not even limit bank dividend payouts, even after the experience at Bear Stearns, which had been deemed “very well capitalized” even as it was failing. Current experiences in Europe where some institutions have a price-to-book ratio of barely 0.35 and have not yet been forced to raise capital are not encouraging about lessons learned….

Third, regulators need to be attentive to franchise value…. Regulatory costs are an especially large issue for smaller banks…. Fourth, bankers may be more right in their concerns about increased costs of capital and its effect on lending than economists usually suggest…. Fifth, it is high time we move beyond a sterile debate between more and less regulation. No one who is reasonable can doubt that inadequate regulation contributed to what happened in 2008 or suppose that market discipline is sufficient…. At the same time, not all regulatory expansions are desirable…

Must-Read: Chang-Tai Hsieh and Enrico Moretti: Housing Constraints and
Spatial Misallocation: “We quantify the amount of spatial misallocation of labor across US cities and its aggregate costs… http://eml.berkeley.edu//~moretti/growth.pdf

…Misallocation arises because high productivity cities like New York and the San Francisco Bay Area have adopted stringent restrictions to new housing supply, effectively limiting the number of workers who have access to such high productivity. Using a spatial equilibrium model and data from 220 metropolitan areas we find that these constraints lowered aggregate US growth by more than 50% from 1964 to 2009…

Should-Read: Fabio Ghironi: On Twitter: to @MESandbu: “Some readings and thoughts on Macron’s plans and macro policy in the euro area… https://twitter.com/FabioGhironi/status/865695595566030848

…@MESandbu on possible costs from quest for euro-level substitutes for natl policy: https://amp.ft.com/content/a94cad66-3569-11e7-bce4-9023f8c0fd2e Here’s what @MESandbu thinks Macron should focus on: https://amp.ft.com/content/203e4e1a-357f-11e7-bce4-9023f8c0fd2e FT View: This could be good time to pursue badly needed reform of the banking system: https://www.ft.com/content/c6c824c8-3637-11e7-99bd-13beb0903fa3.

I agree w much in these articles, but I also think that Macron’s push for more fiscal policy coordination/fiscal union is very important. Policymakers across EU should move away from notion that, if countries followed its rules, SGP would accomplish fiscal coordination. The SGP is not coordination. It is a set of constraints over and above those subject to which optimal coordination should be pursued. I wrote a few thoughts on this last July here: http://faculty.washington.edu/ghiro/GhiroStraightjacketsVsCoordination0716.pdf

Bottom line: the SGP is suboptimal; it is unenforceable, as Germany itself contributed to showing; and it should be ditched. Policymakers should also move away from the notion that fiscal policy harmonization should necessarily be pursued. Asymmetric shocks across EZ countries are bound to make differences in fiscal policies the optimal outcome under desirable coordination! Finally, policymakers (& analysts) should also move away from the notion that fiscal union should always & only mean a transfer union….

My hope is conversation wd help understanding that true fiscal coordination/union involves more than transfer union. In that sense, I think talking about EZ finance minister can help bc it naturally leads to the question of the role of this minister, which I hope wd lead to discussion of coordination beyond transfers. And even if that’s not accomplished, I think clarity wd be valuable…

Must-Attend: But, alas!, I will not—I have to miss it. It is really a shame…

Berkeley Behaviorial Economics Initiative: Celebration of 30 Years of Behavioral Economics at Berkeley: May 20, 2017 :: Wells Fargo Room at U.C. Berkeley:

• 12:00 noon: Lunch On Site in Haas Courtyard, with Gelato on the cone from Caravaggio Gelato
• 1:00 PM: Introduction: Carla Hesse (Dean of Social Sciences, Berkeley)
• 1:10 PM: Behavioral Economics On the Field: Farhan Zaidi (General Manager, LA Dodgers), introduced by Stefano DellaVigna (Co-Director of Behavioral Initiative)
• 2:00 PM: Back to 1987: Some Ideas for the Future: George Akerlof and Daniel Kahneman (Instructors of 1987 PhD Class in Berkeley on “Psychology and Economics”)
• 3:00 PM: Becoming Behavioral Economists at Berkeley: Saurabh Bhargava (CMU), Zack Grossman (UCSB), Devin Pope (University of Chicago), Gautam Rao (Harvard), Paige Skiba (Vanderbilt), Justin Sydnor (University of Wisconsin)
• 3:30 PM: Coffee Break
• 4:00 PM: Roundtable on Behavioral Economics in Berkeley: The Past and the Next 30 Years Matthew Rabin (Harvard). “Behavioral Models for the Future”
• 4:20 PM: Roundtable: Five-Minute Takes: “Witnessing the Rise”: Daniel McFadden (Berkeley), Hal Varian (Berkeley and Google); “Training in Behavioral in the Early Years”: Gary Charness (UCSB), Ted O’Donoghue (Cornell), Terry Odean (Berkeley); “Behavioral Faculty at Berkeley”: Shachar Kariv (Berkeley), Botond Koszegi (CEU)
• 5:00 PM: Round Table: Open Discussion
• 5:35 PM: Closing Reflections: Rich Lyons (Dean of Berkeley Haas)

Economics 296 and Psychology 290Q :: Spring 1987

University of California :: Professors Akerlof and Kahneman :: Departments of Economics and Psychology

1. Violations of Assumptions of Economic Theory

• W. Bazerman: JUDGMENT IN MANAGERIAL DECISION-MAKING (Wiley, 1986), chs. 1-3, pp. 1-66.

2. Situations in Which Violations Make No Difference

• M. Miller and F. Modigliania: The Cost of Capital, Corporation Finance, and the Theory of Investment: AMERICAN ECONOMIC REVIEW (June 1958), pp. 261-97.
• G. Becker: THE ECONOMICS OF DISCRIMINATION, Introduction, chs. 1-3, pp. 1-54.
• R. Nisbett and L. Ross: HUMAN INFERENCE: STRATEGIES AND SHORTCOMINGS OF SOCIAL JUDGMENT, chs 11.

3. Models Where Violations of Assumptions Make a Difference

• S. Salop and J. Stiglitz: Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion: REVIEW OF ECONOMIC STUDIES (1977) pp. 493-510.
• G. Akerlof and W. Dickens: The Economic Consequence of Cognitive Dissonance: AMERICAN ECONOMIC REVIEW 72 (June 1982), pp. 307-19.
• J. Haltiwanger and M. Waldman: Rational Expectations and the Limits of Rationality: An Analysis of Heterogeneity: AMERICAN ECONOMIC REVIEW (June 1985), pp. 326-40.
• T. Russell and R. Thaler: The Relevance of Quasi-Rationality in Competitive Markets: AMERICAN ECONOMIC REVIEW (December 1985), pp. 1071-82.

4. Near Rationality Theory

• G. Akerlof and J. Yellen: A Near Rational Model of the Business Cycle with Wage and Price Inertia: AMERICAN ECONOMIC REVIEW
• G. Akerlof and J. Yellen: Can Small Deviations from Rationality Make Significant Differences to Economic Equilibrium?: QUARTERLY JOURNAL OF ECONOMICS (September 1985), pp. 708-820.
• G. Akerlof and J. Yellen: A Dynamic Envelope Theorem (1986).

5. Detailed Discussion of Assumptions

• Bazerman, chs. 6-9, pp. 67-169.
• A. Tversky and D. Kahneman: Rational Choice and the Framing of Decision: JOURNAL OF BUSINESS (October 1986), pt. 2,= pp. S251-76.
• D. Kahneman and A. Tversky: Prospect Theory: An Analysis of Decision Under Risk: ECONOMETRICA (March 1979), pp. 263-91.
• H. Arkes and C. Blumer: The Psychology of Sunk Cost: ORGANIZATIONAL BEHAVIOR AND HUMAN DECISION (1985), pp, 124-40.
• R. Thaler: Toward a Positive Theory of Consumer Choice: JOURNAL OF ECONOMIC BEHAVIOR AND ORGANIZATION (March 1980), pp. 39-60.
• E. Hoffman and M. Spitzer: The Coase Theorem: Some Experimental Tests: JOURNAL OF LAW AN ECONOMICS (1982), pp. 73-98.
• D. Kahneman, J. Knetsch, and R. Thaler: Fairness and the Assumptions of Economics: JOURNAL OF BUSINESS (October 1986), pt. 2 pp. S285-300.
• J. Knetsch and Sinden: Willingness to Pay and Compensation Demanded: QUARTERLY JOURNAL OF ECONOMICS (August 1984), pp. 507-21.
• J. Kagel and D. Levin: The Winner’s Curse and Public Information in Common Value Auctions: AMERICAN ECONOMIC REVIEW (December 1986), pp. 894-921.
• R. Bishop and T. Heberlein: Measuring Values of Extra-Market Goods: Are Indirect Measures Biased?: AMERICAN JOURNAL OF AGRICULTURAL ECONOMICS (1979), pp. 926-30.
• B. McNeil, S. Parker, H.. Sox, and A. Tversky: On the Elicitation of Preferences for Alternative Therapies: NEW ENGLAND JOURNAL OF MEDICINE no. 306 (1982), pp 1259-62.

6. Applications to Markets

• R. Frank: Are Workers Paid Their Marginal Products?: AMERICAN ECONOMIC REVIEW (September 1984), pp. 549-71.
• D Kahneman, J. Knetsh, and R. Thaler: Fairness as a Constraint on Profit Seeking: Entitlements in the Market: AMERICAN ECONOMIC REVIEW (September 1986), pp. 728-41.
• G. Akerlof: Labor Contracts as Partial Gift Exchange: QUARTERLY JOURNAL OF ECONOMICS (November 1982), pp. 543-69.
• M. Weitzman: The Simple Macroeconomics of Profit Sharing: AMERICAN ECONOMIC REVIEW (December 1985), pp. 937-53.
• R. Shiller: Stock Prices and Social Dynamics: BROOKINGS PAPERS ON ECONOMIC ACTIVITY 1984:2 (1984), pp. 457-510.
• W. De Bondt and R. Thaler: Does the Stock Market Overreact?: JOURNAL OF FINANCE (July 1985), pp. 793-808.
• K. Arrow: Risk Perception in Psychology and Economics: ECONOMIC ENQUIRY (1982), pp. 1-9.

Must-Read: Ryan Avent: Free exchange: A new anthology of essays http://amzn.to/2pYyN2A reconsiders Thomas Piketty’s “Capital”: “The book explores arguments left undeveloped in Mr Piketty’s masterwork… http://www.economist.com/news/finance-and-economics/21722166-book-explores-arguments-left-undeveloped-mr-pikettys-masterwork-new

…The Economist… Thomas Piketty… Capital in the Twenty-First Century… advi[sed] to take the analysis seriously, yet to treat the policy recommendations with caution. The book’s striking warning of the creeping dominance of the very wealthy, looks as relevant as ever: as Donald Trump’s heirs mind his business empire, he works to repeal inheritance tax. But “Capital” changed the agenda of academic economics far less than it seemed it might.

A new volume of essays reflecting on Mr Piketty’s book, published this month, prods economists to do better. It is not clear they can. After Piketty: The Agenda for Economics and Inequality, edited by Heather Boushey, Bradford DeLong and Marshall Steinbaum, is a book by economists, for economists…. Piketty argued that wealth naturally accumulates and concentrates, so that familial riches are ever more critical to determining an individual’s success or failure in life. The extravagant inequality of the Gilded Age could return if no preventive action is taken…. Despite its 700-odd pages, “Capital” gave important details short shrift. “After Piketty” takes these lacunae in turn, pointing out, essay by essay, how Mr Piketty might have devoted more space to the role of human capital and technological change, the structure of the firm and the rise in outsourcing, sexual inequality, geography and so on….

[The] damning critique [of Piketty]… treats the elasticity of substitution as a meaningful parameter in a well-behaved economy. It may not be. In the most incisive essay in “After Piketty”, Suresh Naidu describes a “domesticated Piketty” who communicates in the language of economics and whose argument hinges on things like the elasticity of substitution… [and] a “wild Piketty” who pays attention to social norms, political institutions and the exercise of raw power. He suggests that r > g is not a theory to be disproved but a historical fact to be explained. And he suggests that the wealthy use their influence to shape laws and society in order to guarantee themselves a better return on their wealth….

Politics is “everywhere and nowhere” in Mr Piketty’s book, as Elisabeth Jacobs notes in her essay. What “After Piketty” reveals is the message lurking within all the undeveloped arguments in “Capital” about politics and ideology. It is that economists set themselves too easy, too useless a task if they can describe how capitalism works only when politics is unchanging…

Should-Read: The problem is that nobody really knows—yet—how to accomplish the successful “scaling [of] faculty productivity through online education”. The people who can successfully take MOOCs—at least as they are currently organized and envisioned—are people who could perfectly well learn via sustained interaction with the Turing-class virtual instantiation of the thinker they could construct and run on their wetware—in other words, by reading and thinking about the book.

The fact that the lecture survived Gutenberg strongly suggests that that slice of the population—the successful MOOC-takers—is a relatively small fraction of even those who excel and strongly benefit from our current system of higher education.

Rick Levin: Toward Sustainable Financing of Higher Education: “In the face of rising costs of attendance and an escalating burden of student debt… http://www.cshe.berkeley.edu/events/toward-sustainable-financing-higher-education-0

…universities are under pressure to increase productivity and control costs.  This lecture offers three suggestions: (1) a novel framing of the argument for public support of universities, (2) conserving capital expenditures by proper accounting for the cost of facilities, and (3) scaling faculty productivity through online education…