Category: Equitablog

Should-Read: Jonathan Portes: Spreadsheets are people too: statistics and reality http://notthetreasuryview.blogspot.co.uk/2017/04/spreadsheets-are-people-too-statistics.html: “[David] Goodhart’s response will be… that I am…

…“sniping in the footnotes” and that I spend too much time with databases and not enough in the “real world”. But there is a fundamental problem with the argument by those like Dr McCrae or Mr Goodhart that “spreadsheets” or “databases” are somehow divorced from reality, while the experiences of (selected) individuals represent it. In fact, spreadsheets—or at least the ones used by labour market economists and, indeed, quantitative social scientists more broadly—are far more closely connected to the “real world” than any [single] individuals’ experience can hope to be…. The statement that… the bottom decile… have recently seen their pay rise faster … is not (just) a statement about numbers, or a claim that Mr Goodhart has failed to read the right ONS spreadsheet. It is a statement about what has–contrary to Mr Goodhart’s claim-actually happened to the pay packets of several million people. It is the spreadsheet, not what my nephew looking for a job, your cab driver, or Dr McCrae’s landscape gardener friend say that best reflect the real world…

Should-Read: Financial Times: The Fed and ECB keep a cautious eye on the exit https://www.ft.com/content/a0180496-1b7b-11e7-a266-12672483791a: “Making a promise… and then breaking that promise tends to have more severe consequences for central banks…

…building up credibility for fighting deflation is as important, if not more, than keeping inflation down. Whether to hold on to assets and how to dispose of them are tricky technical questions. What should be clear, however, is that the Fed should be in no hurry. It has no need to bow to impatience from Congress or from investors who wrongly opposed QE in the first place. Thanks to their own efforts, central banks have increasingly pleasant tasks to perform, removing emergency measures rather than trying to think of more. But in doing so they must be guided by the same dispassionate technocracy that caused them to go down that route in the first place.

Must-Read: David Leonhardt: The Original Republican Lie About Obamacare: “It’s often said in a tone of regret: I wish Obama had done health reform in a bipartisan way…

…It is false…. That it’s nonetheless stuck helps explain how the Republicans have landed in such a mess on health care…. The AARP doesn’t like the bill, nor do groups representing doctors, nurses, hospitals, the disabled and people with cancer, diabetes and multiple sclerosis. Other than that, Mrs. Lincoln, it’s a great bill…. How did the party’s leaders put themselves in this position?… They began believing their own hype….

Barack Obama… could continue moving the party to the center or tack back to the left. The second option would have focused on… expanding Medicare to start at age 55. But Obama and his team thought a plan that mixed government and markets—farther to the right of Clinton’s—could cover millions of people and had a realistic chance of passing. They embarked on a bipartisan approach. They borrowed from Mitt Romney’s plan in Massachusetts, gave a big role to a bipartisan Senate working group, incorporated conservative ideas and won initial support from some Republicans. The bill also won over groups that had long blocked reform, like the American Medical Association.

But congressional Republicans ultimately decided that opposing any bill, regardless of its substance, was in their political interest…. At that point, Obama faced a second choice–between forging ahead with a substantively bipartisan bill and forgetting about covering the uninsured. The kumbaya plan for which pundits now wax nostalgic was not an option. The reason is simple enough: Obamacare is the bipartisan version of health reform. It accomplishes a liberal end through conservative means and is much closer to the plan conservatives favored a few decades ago than the one liberals did….

Having run out of political ground, Ryan, McConnell and Trump have had to invent the notion of a socialistic Obamacare that they will repeal and replace with… something great!… Their approach to Obamacare has worked quite nicely for them, until now. Lying can be an effective political tactic. Believing your own alternative facts, however, is usually not so smart.

Must-Read: Paul E. Smaldino and Richard McElreath: The Natural Selection of Bad Science http://rsos.royalsocietypublishing.org/content/3/9/160384: “Poor research design and data analysis encourage false-positive findings…

…Such poor methods persist despite perennial calls for improvement, suggesting that they result from something more than just misunderstanding. The persistence of poor methods results partly from incentives that favour them, leading to the natural selection of bad science. This dynamic requires no conscious strategizing—no deliberate cheating nor loafing—by scientists, only that publication is a principal factor for career advancement. Some normative methods of analysis have almost certainly been selected to further publication instead of discovery. In order to improve the culture of science, a shift must be made away from correcting misunderstandings and towards rewarding understanding.

We support this argument with empirical evidence and computational modelling. We first present a 60-year meta-analysis of statistical power in the behavioural sciences and show that power has not improved despite repeated demonstrations of the necessity of increasing power. To demonstrate the logical consequences of structural incentives, we then present a dynamic model of scientific communities in which competing laboratories investigate novel or previously published hypotheses using culturally transmitted research methods. As in the real world, successful labs produce more ‘progeny,’ such that their methods are more often copied and their students are more likely to start labs of their own. Selection for high output leads to poorer methods and increasingly high false discovery rates.

We additionally show that replication slows but does not stop the process of methodological deterioration. Improving the quality of research requires change at the institutional level.

Must-Read: This “mistake”—by Ryan Ellis of Americans for Tax Reform—is not the kind of “mistake” that one can make by accident:

Josh Barro (2012): Yes, the 1990 Budget Deal Spending Cuts Were Real https://www.bloomberg.com/view/articles/2012-12-27/yes-the-1990-budget-deal-spending-cuts-were-real: “When you talk with conservatives about why they resist deficit-cutting deals…

…a response you often hear is that these deals produce real tax increases and illusory spending cuts…. But the deal conservatives hate most, the Budget Enforcement Act of 1990 (the one where President George H.W. Bush broke his “no new taxes” pledge) really did cut spending as promised. The claims that it didn’t are based on bad math. Ryan Ellis of Americans for Tax Reform made the usual “fake spending cuts” case against the 1990 deal last year…. This is false! The CBO’s five-year projection for spending prior to the 1990 budget deal was not $7.07 trillion… [but] $7.28 trillion…. The CBO had forecast $7.07 trillion in spending over this period in January 1990; this is the figure Ellis cites. The Budget Enforcement Act wasn’t enacted until November. In the intervening period, two things happened. First, tax collections were weak, leading the CBO to cut its revenue projections over the following five years. Second, the apparent cost of the ongoing savings and loan bailout through the Resolution Trust Corporation greatly increased….

When the CBO looked back at the Budget Enforcement Act in 2003, it found that Congress had actually adhered closely to its discretionary spending caps all the way through 1998, never exceeding the caps by more than $10 billion. (See the table on page 115.) Congress lost discipline after that, probably because the budget moved into surplus and spending restraint no longer seemed necessary. Of course, that heady desire to spend (and cut taxes) persisted much longer than the surpluses did. You don’t have to like the outcome of the Budget Enforcement Act of 1990, particularly if your primary concern is keeping taxes low. But you can’t argue that its promised spending cuts didn’t materialize, unless you think $7.09 trillion is more than $7.09 trillion.

Should-Read: This strikes me as a very bad move indeed.

Dan Tarullo is a much better Governor of the Federal Reserve than anyone I can imagine Donald Trump nominating in his place.

So why is he leaving?

It’s not as though the fact that Federal Reserve Governors are notionally appointed to fourteen-year terms is a secret…

Matthew C Klein: Tarullo Exits Federal Reserve https://ftalphaville.ft.com/2017/02/10/2184358/tarullo-exits-federal-reserve/: “Daniel K. Tarullo submitted his resignation… as a member of the Board of Governors of the Federal Reserve System, effective on or around April 5, 2017…

…Tarullo, 64, was appointed to the Board by President Obama for an unexpired term ending January 31, 2022…. Tarullo was the Fed’s point man on financial regulatory issues, although he was never confirmed to the role of Vice Chairman for Supervision and was often undermined by the Fed’s far more powerful General Counsel, who, as it happens, is also leaving. His departure adds to the two open spots on the Federal Reserve Board, which in principle is supposed to have seven members.

Should-Read: Neville Morley: Keep Lectures Live! https://thesphinxblog.com/2017/03/03/keep-lectures-live/: “Sitting in silence, concentrating on the real-time exposition and exegesis of material and the development of arguments and analysis…

…a combination of preparation and spontaneity – and developing one’s own critical commentary alongside is a valuable exercise in itself (and not, as I tended to think when an undergraduate, a pointless exercise when one could read the book instead). Moreover, it makes learning a social activity, alongside the solitary work in the library: “classrooms are a community”, and taking away the structures and rhythms of that community will inevitably weaken and undermine it….

Differentiating the actual lecture from the live recording is a bit trickier, but not impossible. It’s about making the experience something that students – or at least most of them – will value and so pay more for (at least by investing time and effort in getting out of the house, finding their way to the lecture theatre etc.). It’s a chance (not of course the only chance) to ask me questions, as well as to meet one another, but more importantly – at least in my view – there is the stuff that doesn’t get into the recording. You have to be there, above all for the sections that are not simply me talking…

Must-Read: Kevin O’Rourke and Jeffrey Williamson: The spread of modern manufacturing to the poor periphery http://voxeu.org/article/spread-modern-manufacturing-poor-periphery: “Factor endowments: had a profound impact…

…Labour-abundant and resource-scarce countries could enter at the bottom of the ladder, producing and exporting labour-intensive products (e.g. East Asia). Labour-scarce and high-wage periphery countries could not exploit that strategy, and thus relied on a tariff-protected domestic market (e.g. Latin America). Where the labour-scarce economy had only a small domestic market (e.g. Southeast Asia), industrial growth was difficult…. Sub-Saharan Africa, Latin America, and Southeast Asia… resource-abundant and labour-scarce… commodity export processing, and later import substituting industrialisation, were the typical routes….

The supply of educated labour seems to have been just as important as the supply of overall labour in improving the ability of poor countries to develop modern manufacturing. When modern manufacturing began its spread to the periphery, a lack of skills was often an important constraint…. European colonisers damaged their colonies: it was not until their colonies achieved independence that major progress was made towards providing universal primary (and later secondary) education. After independence, a literacy revolution took place almost everywhere around the periphery.

It was easier to overcome a shortage of financial and physical capital than human capital…. Financial capital was borrowed from abroad… in the first global century up to WWI for Imperial Russia, colonial India, and Latin America. But borrowing from abroad was only possible when international capital markets were functioning properly, and this was not the case during the de-globalising years from the 1920s to the 1970s. Even more important than financial capital inflows were imports of equipment and machinery, which embodied up-to-date technology. These imports were crucial…. They had to be paid for with export earnings when international borrowing was difficult. Otherwise, balance-of-payments constraints suppressed investment…. Governments attempted to relax these constraints in various ways….

International context and luck:… World commodity price trends and their volatility were central to local manufacturing profitability and performance…. Since world markets for manufactured exports mattered, so did geography…. Regional agglomerations… linked to trade connections with the rest of the world: port cities offered access to foreign capital, cheap raw material imports, entrepreneurship, and modern technology, or access to foreign markets…. Finally, luck mattered…. Latin America dropped its trade barriers in the late 1970s only to have China flood world markets with manufactures…. Southeast Asia started its miracle in the 1970s when Japan shifted from labour-intensive to capital-intensive technologies and used FDI to move their older technologies to Malaysia, Thailand, and other Southeast Asian countries. The region was again favoured by a booming Chinese market starting in the 1980s….

Policy:… Tariffs spurred the growth of import-competing manufacturing, but they hampered the growth of export-oriented commodity processing, and early on this was the most important modern industrial activity in resource-abundant and labour-scarce regions…. In labour-abundant countries, labour-intensive manufacturing had at least a chance of getting off the ground without the artificial stimulus of tariffs…. In labour-scarce countries, however, protection was probably going to be required if labour-intensive manufacturing was to get off the ground: industrialisation in peripheral Europe and Latin America typically originated behind tariff barriers… [but] when these countries liberalised in the 1980s and 1990s, many lost a good deal of the industry that had been built up under protection….

The impact of policy was particularly dramatic in those economies which turned to Communism…. All promoted capital-intensive heavy industry for ideological reasons…. The experience following liberalisation in the 1980s or 1990s has differed greatly…. Chinese central planners helped lay the foundation for the subsequent growth miracle, by changing factor endowments, importing technology, and providing a manufacturing base that would become much more efficient. East European countries have deindustrialised since 1989, while even Russia has reverted to more resource-exporting. India, which also pursued capital-intensive industrialisation strategies, saw its service sector expand dramatically after liberalisation…